I have not posted much here lately, but noticed that were not any new posts regarding this subject. This is information that will obviously affect us mortgage lenders but is also important for Realtors to be aware that the guidelines are changing and it's happening very quickly.

In the last 2 weeks two sub-prime lenders that I have been using have closed up shop. Own-it Mortgage, and Sebring Capital both companies that did a good amount of sub-prime volume Nationally closed their doors. They underwrote, closed, funded, and then sold these loans on the secondary market to investors like Merrill-Lynch. Argent and Ameriquest who are owned by the same company are not performing well are currently on the auction block. Several other companies like Option One Mortgage and rumors are surfacing that several other lenders are in deep trouble.

Option One for example is a division of H&R Block, and they cost H&R I believe around 39 million in lost revenue this year alone. The same goes for most of the industry. The 580 100% loans are going to become much more difficult and stated income loans will also tighten their guidelines.

Realtors need to know that when one of these wholesale lenders closes up shop it happens at the drop of a hat. This could be something that may affect one of your borrowers. It is not a need for panic, but important for you to understand that it can, and has already happened.

Sebring closed it doors officially around Thanksgiving. They continued to close and fund loans that were approved for 15 days, which was a great gesture on their part.

Own-it on the other hand is a company that I was told funded about 1 Billion in loans each of the last 3 months. When Own-it closed shop they informed their employees at 5Pm and that was it shows over no more closings period. If you had loan that was closing on the following day tough luck your going to have to start over with a whole new lender and hope for the best.

The 100% sub-prime purchase loan is performing terribly and lenders who were trying to build business with banks and brokers were giving the interest rates away at a loss in an attempt to build residual business. What they couldn't overcome was the massive amount of under performing loans that they were closing.

The scariest thing to me is that these customers were getting amazing rates and terms, and still were not able to make the payments on time or at all.

There is a common misconception with sub-prime or B/C borrowers is that they are low income, or challenged credit. Several of your high dollar loans and purchase that don’t fit Conforming guidelines go thru sub-prime channels to obtain better pricing or higher loan amounts. If it isn’t a cookie cutter customer with easy to prove income and assets and a down payment they were probably some form of b/c or Alt-A.

These changes will affect how we will all continue to do business, as the buyer/lender pool will get smaller as a result. Banks will tighten guidelines to limit the risk of ending up in trouble. They will again require buyers to have down payments or skin in the loan. They will at least raise the score requirements. Some B/C lenders have told me that they will begin requiring assett’s to prove the customer has some form of reserves.

I am sure some of you who take the time to read this will say so what I don’t use Sebring or Ownit, or Option One. The truth is if you have ever closed a sub-prime purchase you have used the same guidelines with your lender that the rest of these guys use. Most sub-prime mortgage loans even those that remain serviced by companies like Countrywide or Wells Fargo for example are securitized by groups like Bear Stearns or Merrill Lynch. These large funds purchase these loans in bulk numbers from various wholesale underwriters like countrywide, or Ownit or Sebring Capital. They randomly audit certain files, and grade a stack of loans accordingly. The price paid for the bundle is how much these loans will be sold to Wall Street. The wholesale underwriters/lenders do not want to keep these files and will sell as quickly as they close with your customers. However when they have loans that under perform they are forced to sell at a loss or hold them and sell as Scratch and Dent.

The aggressive interest rates lenders were offering were at a very small margin of profit if any. When you stack that small profit margin with aggressive underwriting then you end up with scratch and dent materials to sell.

This is quite a large e-mail and I will wait to see if anyone takes the time to read before I continue. This is my opinion of the market and the fact that changes are coming, and expect them sooner rather than later. Eventually after the market is under control and safer the lenders will loosen guidelines again until they get burned again, and so on, and so on.

Great post TN Mort Broker. I also read about the Ownit's spontaneous closing, and that their employees did not have a clue. I also started getting e-mails from my Argent Rep offering to fund any Ownit loans that got slammed by the surprise closing. I had none, but not surprised that the honeymoon is over on the loose requirements loan. The stated income, stated assets, and all other variations attached to them were doomed to fail and we are now seeing that in the rapid rise of foreclosures. The 100%, the interest only, the 1%, the option arms are all on top of the "false sense of security" loan heap. If the rise in mortgage payments ARM's don't drive you up one side of your house's wall and down the other, the negative amortization will.

The handwriting has always been on the wall, just who was able to interpret it, are the smart ones.

It is definitley going to show in rates and programs very soon. I think it is important for Realtors to undersstand why thier clients that were say getting say 7% rates last summer are now getting 9% on sub-prime for example. While the conforming or A paper rates are much lower. The lenders will price according to the risk or will eliminate programs all together.

It's better to not write any loans than to close bad one's.

I enjoyed reading your "lengthy post" as it was very informative and accurate. I have been seeing these changes also, especially since the turn of the new year. Almost everyday these past two weeks I have been getting e-mail notifications from various lenders I work with in reference to their new guidelines. They are definitely "tightening up". The latest news is that stated 100% borrowers are going to have to show 2 months of living expenses in the bank "seasoned" for the past 6 months. Times sure are a changin'!! But in my opinion it is for the best...

Yes, the industry is going through an “adjustment” just like the real estate market.

MLN & Popular have closed as well and there are rumors about HSBC’s B/C ARM Decision One not performing well.

The main impact I am seeing is the minimum credit scores for 100% full income documentation loans and particularly stated loans. Just recently lenders were dropping their minimum score requirements to keep up with other lenders. Now the minimum score requirements are on the rise- like other lenders.

This entire post must be viewed in perspective. People were buying and selling homes when the economy was much worse than it is now and when rates were in the high teens. There were not all the fancy programs we have now. Even if the entire lending industry eliminates many products, raises minimum score requirements and rates go up considerably we are still in a MUCH better situation than days of the past.

In actual fact the interest rates have gone up but they are still near record lows, a mere fraction of what they were years ago. Now is the best time for home purchasing. Good rates, good programs and good prices. I think the media representing the market as being bad and creating panic and worry to sell advertising is the real driving force in the current market.

I am personally seeing signs of the market picking up here in Florida and I am seeing more purchase transactions.

Yes, excellent post.

Totally agreed that the industry is going thru a major overhaul in the subprime and alt A arenas. I still have a good number of sub sub prime lenders available but I am warning borrowers that what's available today prolly won't be tomorrow.

I'm seeing the need to provide more credit restoration info to prospective borrowers so they can raise their scores to meet the new guidelines that are surely coming.

Also I think it's important to factor in falling home values, at least here in SoCal. Makes it tough to sell or refi if you're in trouble.

Anyone else suspect we may see the Feds do some rate cutting this yr?

There was some talk of rate cutting; however, with the employment, unemployment and inflation numbers this does not look too good.

The most major issue stopping the Fed from dropping the rates is inflation.

yes the sub prime market is going "FLAT" forclosure rates are UP! I know D1 just closed 5 more locations and also First NLC closed shop here in St Louis and is now running a skeleton crew in the KC area also look out for the stated wage earner (W2) loan to be gone very very soon!!!

More heads are starting to roll. I am really hopeful that New Century will pull thru their current mess. The few lenders that are left that are doing 580 100% financing are really difficult to qualify with.

No doubt about it that this spring and summer lending season will be much scaled back than the last few years. Realtors should call their preferred lenders so you can get an idea of what and how guidelines have changed.

Borrowers that were great B+C loan scenarios last year will be lucky to qualify. Make sure you are working with someone who is knowledgeable and trustworthy to keep you informed of changes. Check the stock market to see who is in trouble and why?

Buckle up and hang on. This will be interesting to watch unfold. To bad it will directly impact all of us Lenders, Realtors, and most importantly borrowers/buyers.

Hard to believe it has been 3 months since MLN and Ownit and Sebring all went down. Wow the changes just since March 1 have been devestating. My entire March pipeline has went from easy to place and pirce to where the hell can I get this done, and at any cost. I have customers crying in my office, and there is nothing I can do to help. I have worked 12+ hours a day since saturday trying to get all sub-prime deals in DU. Tweak each deal as My community/Flex 100 and whatever it takes to get an approve is what most of these customers are forced to come up with. Absolutley devestating.


REALTORS- if you have peole selling homes or buyers looking to close that have shakey credit please inform them of potential issue to have a loan to close. If they are on something other than Fully documented income look out. Just becasue some banker/broker says they can do a loan every one else is declining does not mean they can. They probably have not turned thier computer on that day. Fannie Mae and Freddie Mac are going to ditch certin limited doc types of loans along with a majority of 100% financing loans. Every one uses Fannie and Freddie. That means your bank, your broker, your customers broker, and anyone who does a mortgage loan. Be aware and Be informed. Make your customer aware and informed of the changes. Wall Street makes instant decisions without warning.

I have said it already but banks dont write bad loans to keep relationships. Think of lending as if it was your own money, and how you would lend it. If 20% of the time you dont get your money back you will stop lending eventually. Underwriters do not get emotionally attached to customers for a reason.

I received a few e-mails from lenders who are no longer doing stated loans...

Option one just sent an e-mail today stating no more 100% loans

Countrywide Home Loans just informed their correspondent partners that they will no longer do 100% financing in their sub-prime channel. 100% one loan or 80/20 programs. This is for FULL income documentation.

If your mortgage company was delivering business to Countrywide under this product mix they won't buy it any more.

This is one more piece of confirmation for me as to why I made the right choice last October when I closed my mortgage company and joined Bank of America. Among other considerations was finding a company with no sub-prime division and I'm thankful I held to that conviction.

This is a great post. Almost everyday im scared to check my email because major lenders for the sub-prime market are here today, gone tomorrow! My pipeline is on a roller coaster! I loved the subprime market for many reasons but now I have to re-evaluate if I want to continue to do subprime. The majority of my business comes from subprime and I dont know what lender will be around when the dust settles to do these loans. There are many lenders (Nova Star for example) who's niche was low scores and now they have restructured to where they dont look at scores below 640! The market is insane right now!

I thnik Novastar is requireing 680 or better blended score for a 100% loan. Freaky stuff right there. Stick with lenders backed by major players until you know where things stand. Don't take that chance on some lender you have never heard of to do something no one else is offering. My feeling is sell what the big dogs are offering and although you may miss a deal you can limit the stress to your customer and your business partners. Don't be a hero, but be informed of the changes as they are coming quick. I know I am looking at pre-quals that I would give the Nod on 2 weeks ago and now the product no longer exists.

It is a little scary right now. Hold on tight. The strong will survive.

I agree Mortgage-Master it is a phase, the we are going through and that we have already gone through in the past.

Great posts! How in the world does someone who is young, newly married just starting out every buy a home? Sometimes I'm grateful I'm hitting 50 this year! :-)

Wanna hear something kind of funny? Flagstar Bank, probably my new favorite, has just opened a subprime division. I was talking with the AE and he said that the rates aern't sexy, but they are still doing some of the riskier credit stuff. Just an FYI.

There are still plenty of banks doing sub-prime. A few that couldn't handle it shut down, some re-structured and others became new players in the game. Everyone will get through this, yes, there will be foreclosures, and a lot of people trying to refinance before they get in trouble, and a lot of people that want to refinance but can't because their homes are appraising lower than in 2005, but there are always customer and lenders. Everyone should try to keep the credit scores around 640-660 and there shouldn't be any problems as long as they make enough. There are still lenders that do stated income, although on some they only do it for people that are self employed.

These are interesting times & as a seller, I've been totally caught up in it. At the end of January, I accepted an offer on my home. I was asking $299k, they offered $303k with me paying $8k towards closing costs (net $295k purchase price). It's April 6th & we still haven't closed. It's a 100% finance. The commitment date was extended 3 or 4 times. Through some digging & phone calls (the agents & attorneys involved are not the greatest), I was finally able to get a copy of the "commitment letter" dated 3/28. The Buyer is married, but the wife is the only one going for the loan (my agent believes the husband is an illegal citizen). The commitment letter, which looks more like a preapproval (although my agent said she was preapproved when they made the offer in January), approves the Buyer for a $300k loan at a 9.425% rate for years after paying 2.5% in points. By the way, the home only appraised at $300k, so an amendment to the contract was drawn up stating purchase price of $300k with seller paying $5k towards closing costs. The loan is contingent upon the Buyer providing verification of employment, social security number, deposit of funds to close, etc. in addition to the other items that are normally listed as contingent items for a true commitment letter (clear title & HO insurance). I believe that what has happened is the woman, who was supposedly preapproved with Remi Capital in Union City, NJ which caters to the Hispanic community, got caught up in this new legilsation being brought on to protect buyers from predatory lenders. I spoke to the manager of Remi & he said that the closing had to be delayed (several times) because the underwriter at Remi was afraid of losing his license & so he was going through all of the documentation with a fine-tooth comb checking & rechecking her information. I still do not have a closing date. I'm stuck in limbo because my attorney didn't put a "time is of the essence" clause into the contract & in the State of CT, the Buyer is allowed a "reasonable time" (30 days) after last written closing to get a mortgage & the seller can do nothing. The last I heard, the mortgage broker went on vacation, but the underwriter did call the buyer's attorney a couple of days ago looking for the title and wire transfer instructions - a ray of hope - but, I'm not holding my breath.

I would demand to see something from the underwriter, typically mortgage originators will get a list of conditions from the underwriter which will tell you what items are left. If any major items are still needed (proof of income, assets etc) I would try to get out of the deal as you may be losing potential buyers.

Commitments are basically worthless because there have been lenders that have actually closed a loan "The ultimate commitment" and failed to fund (see ownit, new century, etc)

There are always weasel clauses on commitments (eg. Underwriting QC, No material change in customer circumstance etc.)

Good news - Title and wire transfer instructions are usually positive. (although many companies order this stuff very early in the process) I would ask the attorney who the mortgagee for the title insurance is and if it has changed from the initial request (this could be a sign that the broker is still looking for a suitable company)

Hope this helps
Danny

Well here is the latest in the Lender fallout since the first of the year.

http://ml-implode.com/

some names you will recognize and most you wont as they were primarily regional lenders. There are alot of good harworking people without jobs, and not many places for them to turn in thier industry. Good Luck to all who have been in the biz!

With the Sub-Prime fall out, we have been very busy. We keep our brokers in the know with our FREE Broker Program.. Our brokers are enjoying 5-10 clients becoming loan-worthy in the first 45 days of service. http://convertturndowns.com