Golden State Mortgages May Tarnish Wachovia

Vecchiarello also highlighted the ways in which Golden West was conservative in its underwriting of option ARM mortgages. He noted Golden West's 25-year track record with such loans, along with the fact that the bank underwrote mortgages based on the borrower's ability to pay the fully indexed rate and not the initial teaser rate.

While underwriting may very well have been solid at Golden West, a key variable from the default prediction models may have been missing.

No one at the lender appeared to place much probability on the current scenario occurring, where housing prices are falling and consumers are deciding to simply walk away from their homes.