Wachovia fucked themselves. http://www.nytimes.com/2009/05/15/business/economy/15norris.html?_r=2&

Not realizing it might be acquiring a time bomb, Wachovia made things worse. World/GoldenWest had demanded minimum annual payments of 1.95 to 2.85 percent of the loan balance, but that fell to 1.5 percent soon after the merger was announced. After the deal closed, Wachovia cut the minimum payment to 1 percent, thus offering the most generous terms at the time housing prices were most inflated.

It was not until mid-2008, long after the housing market began to crumble, that Wachovia stopped making such loans.

Looking into Golden West, I think the Sandler's arguments that the initial stories wrongly lumped them in with the truly bad guys hold up. Yes, they were mainly option ARMS, but theirs were different from the truly awful lenders. For one thing they reset over 10 years, not two, so this was much more favorable to the homeowner. And they did not lend to people who put virtually no equity into the house. And Most importantly, they didn't sell they mortgages to Wall Street. They held on to them which meant that they had a stake if those mortgages went bad. They would take the hit. This means they had to do better risk assessment. http://archives.cjr.org/feature/the_education_of_herb_and_marion.php?page=all&print=true

Like other option ARMs, in 2009 Norris wrote, Pick-a-Pay loans were racking up big losses. But when reading Wells Fargo’s first-quarter earnings report, he noticed that less than one-third of 1 percent of Golden West’s loans were expected to recast before the end of 2012, meaning that borrowers wouldn’t see large payment increases for many years. “That struck me as an amazing number,” he says. “How the hell could that be?”

It was the ten-year option at work.

Since their option was over a longer period, homeowners could hold on to their house longer meaning they were in much better shape of waiting out a bad market and holding onto their house until prices rose again.

The FCIC reports supports this idea they their loans were less risky than their counterparts. The thrift issued about $274 billion in option ARMs between 1981 and 2005. Unlike other mortgage companies, Golden West held onto them.

Sandler told the FCIC that Golden West’s option ARMs – marketed as “Pick-a-Pay” loans – had the lowest losses in the industry for that product. Even in 2005 – the last year prior to its acquisition by Wachovia – when its portfolio was almost entirely in option ARMs, Golden West’s losses were low by industry standards. Sandler attributed Golden West’s performance to its diligence in running simulations about what would happen to its loans under various scenarios – for example, if interest rates went up or down or if house prices dropped 5%, even 10%. “For a quarter of a century, it worked exactly as the simulations showed that it would,” Sandler said. “And we have never been able to identify a single loan that was delinquent because of the structure of the loan, much less a loss or foreclosure.” But after Wachovia acquired Golden West in 2006 and the housing market soured, charge-offs on the Pick-a-Pay portfolio would suddenly jump from 0.04% to 2.69% by September 2008. And foreclosures would climb.

Early in the decade, banks and thrifts such as Countrywide and Washington Mutual increased their origination of option ARM loans, changing the product in ways that made payment shocks more likely. At Golden West, after 10 years, or if the principal balance grew to 125% of its original size, the Pick-a-Pay mortgage would recast into a new fixed-rate mortgage. At Countrywide and Washington Mutual, the new loans would recast in as little as five years, or when the balance hit just 110% of the original size. They also offered lower teaser rates – as low as 1% – and loan-to-value ratios as high as 100%. All of these features raised the chances that the borrower’s required payment could rise more sharply, more quickly, and with less cushion.

GoldenWest was simply in not way equivalent to Countrywide or Ameriquest.