Thursday, August 02, 2007You Only THINK You Were Approved
You better start paying attention. This is not a post about Sub Prime. Sub Prime has it's woes, and it doesn't matter if it's rightfully deserved or not, Sub Prime is in a world all it's own.
Or so we thought.
On Monday, trading for a American Home Mortgage, a large ALT-A Lender was halted on the floor of the NYSE. The stock was tanking after it's financial backers said they would not continue with their backing. Remember, AHM was not a Sub Prime Lender, they were primarily ALT-A.
I have personally never done a loan through AHM. It looks like I never will. But here's the really scary part.
Every Lender is scrambling. No matter if it's the biggest (Countrywide) or the smallest, no matter if they do only the highest quality A Paper loans. They are all scrambling right now. They are tightening guidelines, deleting programs and making WILD adjustments all in an effort to make sure they are the "prettiest one at the dance".
We're talking all the big girls. And who are they? According to Inside Mortgage Finance, the top 10 list for originators for the first half of 2007 are
- Countrywide ($245 billion),
- Wells Fargo ($148 billion),
- CitiMortgage,
- Chase,
- Bank of America,
- WAMU,
- Wachovia,
- IndyMac,
- GMAC,
- and American Home Mortgage ($34 billion, now pretty much toast)
It reminds me of a Backpacking quote I always liked, "When you suddenly come face to face with an angry Grizzly, remember you don't have to run faster than the bear, just faster than your buddy!"
Tuesday, Wednesday, and Thursday this week, every lender sent flurries of emails and faxes out to their brokers and loan originators. Every Lender.
They deleted this, they modified that. What was ok yesterday is no longer ok today. Even from this morning to this afternoon.
Now Pay Attention...
- Already approved for a loan? Just about any loan, chances are pretty good the guidelines for that loan changed this week. Your Approval may no longer be valid.
- Did you lock your rate? That lock was for those particular guidelines, your loan may now have an additional "hit" that it didn't have before you locked.
- Did you already sign the loan papers? - When the backers of AHM pulled the plug AHM had $300 Million ready to fund. All of those deals went straight into the trash. "Sorry for any inconvenience - we don't have any money to lend you. Have a nice day!"
- Pre-Qualified? Guess again. Go back to your Mortgage Professional and start again.
- 'We're just thinking..." Thinking about buying or refinancing? If I may make one suggestion. DO NOT Hesitate! Get off the couch and do it right now. This has been the craziest week I have ever seen in 14 years. If you are sitting on the fence for whatever reason right now let me ask you this, "Do you really think it's going to get better in the coming days, weeks or months?" Not a chance!
A self serving note:
I am a Mortgage Broker, (I was a Mortgage Banker years ago).
I can fund loans through all the big lenders and so many more little lenders. At one point I had over 7,000 loan programs at my disposal. While a Mortgage Banker has certain advantages at times, right now, at this point in time, with the volatility in the marketplace as it is, I thank my lucky stars I have the flexibility when a door slams shut (as so many have closed this week), to switch lenders and find a still open door.
It may be just my personal opinion, but if you are not working with a Professional Mortgage Broker today, you may be in for a big disappointment tomorrow. The sad part is that I know so many wonderful, ethical, professional Mortgage Bankers who may get caught up in all this, and it has nothing to do with them or their company. It's the financial backers of that company that they are all scrambling for. The losers will be the borrowers as well as the professional mortgage originators working for that company.
This bears repeating (sorry about the pun) 
Here's Gretchen Morgenson (a Pulitzer Prize NY Times Author) explaining the relationships between Lenders and the "backers". While they are talking about Sub Prime, the same relationships apply. You can read more about it here: Asking the Question
Part One:
Labels: Alt-A, choosing the right mortgage, comparing mortgages, home loans, Homeowner, Loan Officer, market conditions, Markets, mortgage, mortgage planner, Mortgage professional, out of business, prime, Sub-Prime, volatility
posted by Mike 
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3 Comments:
Mike - Hear you loud and clear. As usual though, I suspect those who are on the edge with their loans and pushing the envelope are the ones at highest risk. Those who get loans well within their means and allow a cushion are less effected. I see the highest impact on first time home Buyers. What's your take on what I said?
That's not all together correct. The Lenders are scrambling and jumbling everything. Even those that you point out that should be safe. If you had an A Paper Approval at X.XX% Rate, you may have had an adjustment this last week that bumped your rate. Are you still approved? That's the question and that's the point?
MM
Mike - Great post! A lot of good information and you are right about every lender (large and small) adjusting their business model as we speak. Long story short, the lenders with large depository reserves backing them will be fine and at a competitive advantage with a lower cost of funds than the pure mortgage bankers without large thrift reserves. In fact, during this period, you will see the larger lenders emerge stronger. The Chase's, B of A's, Wells, etc... are changing with the market, but their ability to portfolio unsold product versus a Countrywide (with a very small bank with limited cash reserves) will feel the impact much more than the large thrifts mentioned above.
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