CHARLOTTE, N.C. — California credit unions that offer a full menu of mortgage options may gain some market share if they seek to take advantage of Charlotte-based Wachovia Bank's likely withdrawal of option ARMs from its mortgage offerings available in California.
The bank has said it will announce a final decision at the end of April. Wachovia may decide to halt granting the loans, which allow borrowers to select the monthly payment they make per month, as other banks have, given the high number of foreclosures in regions east of Los Angeles like the Inland Empire and Central Valley. The San Francisco Bay Area county of Contra Costa may also be impacted.
Wachovia purchased Golden West Financial, Oakland, in 2006, a large provider of such loans, and the loans make up 60% of its California loan portfolio, said the bank. Rising defaults on these loans may speed the demise of their availability.
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Credit unions typically do not offer option ARMs because they carry the risk of negative amortization–made worse in areas where home values are declining–but they do offer a range of adjustable-rate loans. The Golden 1 CU has 30-year ARM loans for one, three, five, seven and 10 years with rates that adjust annually for each remaining year of the term, carry no prepayment penalty and can be refinanced at any time.
SchoolsFirst FCU, formerly Orange County Teachers FCU, has a 5/1 fixed/adjustable mortgage with a low starting rate that adjusts annually based on the weekly average of the one-year constant maturity Treasury index for loan amounts up to $2,500,000. The loan has a 5% cap above the initial rate.
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