Aug. 6, 2007: Mortgage muddle: some advice for loan agents

Aug. 6, 2007: Mortgage muddle: some advice for loan agents Rob Chrisman

Let’s say that you were a medium-sized wholesale mortgage operation, and in the middle of last week you were preparing to sell a $20 million pool of already funded Alt-A and Jumbo loans today. Suddenly Thursday and Friday happen. You

a)      Just lost $450,000 since your loans lost 2 points (at best, if you could even find a buyer) and your hedge lost .5 points.

b)      Spend all weekend on the phone with your warehouse banks, since they are sharing in the risk on the $20 million.

c)      Wish that you were better capitalized or even part of a bank, since you could put the $20 million in your portfolio.

d)      Dust off that application for Big Rig School.

e)      All of the above.

Rates dropped on Friday after the unemployment data came and the stock market worsened. A-paper FNMA/FHLMC loan prices improved nicely – one industry expert said that “agency product is the only thing with any liquidity” – and dozens of originators closed their lock desks or did not fund loans. What happened with large investors on Thursday and Friday?

RFC changed their Jumbo A, Expanded Criteria, and Payment Option pricing adjustments.

WAMU ceased doing any low-doc transactions whatsoever with FICO’s less than 680 and LTV’s greater than 65%.

MortgageIT discontinued their No Ratio, No Doc, and SISA loans for several of their products.

Greenpoint stopped taking locks entirely on their Alt-A Fixed and ARM products.

Wells Fargo worsened their Jumbo prices by 1 point and capped them at 100.00 (0 points rebate).

Countrywide changed their guidelines and pricing adjustments for their Expanded and Jumbo product lines.

Deutsche Bank (who owns MortgageIT), closed their lock desk entirely.

Indymac closed their bulk (conduit) desk.

Taylor Bean and CSFB are no longer doing 2nd mortgages. Taylor also scaled back their first lien, Alt-A Fixed, Hybrid ARM and Option ARM programs.

Astoria Bank tightened their guidelines and engaged in a mid-day price change on their ARM’s for the worse, in spite of a nice improvement in A-paper product.

CitiMortgage changed their pricing adjustments for non-agency ARM loans, and also changed the pricing structure for SIVA, NINA, and several other types of loans.

Has the market for Alt-A “melted down”? Performance on Alt-A loans has started hitting the same dismal levels that caused sub-prime to go away, and when you couple that with almost zero interest on the part of the MBS bond market, and the changes that large mortgage investors are making, some are thinking that traditional Alt-A lending will become a thing of the past. What should an agent do? Partner with lenders who have the liquidity and assets to weather this storm, embrace the traditional methods of obtaining and closing business that has been the benchmark for long-term successful loan officers, and lastly, have the guts to tell potential borrowers who don’t fit that you can’t help them.

We have an incredibly light news week this week. That doesn’t mean that volatility for mortgages rates will go away, since our market may take its direction from the stock market, unexpected news, or rumors of the next originator to take a tumble. Tomorrow’s FOMC (Fed) meeting will be very important. Many think that the Fed will lower overnight Fed Funds to help stabilize the markets; others think that they will issue a statement saying that the Fed is “standing by” to provide liquidity.

Week of August 06 – August 10