Fannie Mae has told lenders that in areas that experienced significant price declines, including much of Southern California, that the company will require that borrowers have 5% more equity in their homes than in the past.
Other risky loan types -- such as sub-prime loans, alt-A loans (a category between sub-prime and prime) and jumbo mortgages for borrowers who can't document their incomes -- have become unavailable or are priced so high that borrowers can't afford them, said Jeff Lazerson at Mortgage Grader, an Internet-based mortgage brokerage in Laguna Niguel.
Wachovia completed its purchase of Golden West in October 2006, just months before the first wave of sub-prime lenders collapsed. About three-quarters of its residential mortgage portfolios are option ARMs. Unlike many lenders during the boom, World and then Wachovia always kept the majority of their loans, rather than selling them -- a policy they said assured more caution in their lending.
In its fourth-quarter 2007 earnings report, Wachovia said its nonperforming assets, principally loans gone bad in the housing swoon, had risen to $5.2 billion from $3 billion at the end of the third quarter.
In the memo to loan representatives in California on Monday, Wachovia's general managers for Northern and Southern California said the option ARMs would be discontinued in the 17 counties "due to depreciating home values in specific markets."
The memo said the bank was "currently evaluating every market within each affected county" to see where the loans could be offered "on a limited basis."
Kevin Stein, associate director of the lower-income advocacy group California Reinvestment Coalition, said he had reservations about the marketing of option ARMs as "affordability products," when in fact they were appropriate for only a limited number of borrowers.
However, Stein said, since Wachovia argues that its option ARMs are good loans, it should offer them throughout California and not exclude some areas.
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scott.reckard@latimes.com
