Archive for March, 2007

Mortgage Times are a changing!

March 21, 2007 at 11:38 pm · Filed under 100% finaincing, credit score, mortgage, subprime lenders

Oh the difference a few months can make. I am currently sitting with 3 loans on my desk that only 3 months ago would have been closed and funded in two weeks or less. Today I’m not sure if I will be able to find any lender who will take them. Here is a couple examples of what I’m talking about;

One borrower has a 615 middle credit score, which is not very good but could be worse. They have a good job and make decent money and they have never been late on their mortgage which they have had for about 17 months. They called me to see about refinancing to 100% and taking some cash out to make some improvements on the home. In the old days (3 months ago) anyone with a credit score of 580 a good job and income could get 100% financing, with cash out, in a heart beat. Today after exhausting 11 lender resources, I finally had to call the client and tell them that the best I could do was going to be 95% and the interest rate was going to be almost insulting. Fortunately this client is not desperate for cash and can afford to wait a month or two until their credit score goes up to 620 points, they new floor for 100% financing.

Another borrower I have been struggling with has a 649 credit score but is self employed and has had 1 mortgage late in the past 12 months. We are able to use bank statements as proof of income so this loan is treated as “full doc” which means it gets the same consideration as someone who has a full time w-2 job. In the old days most of the 75 lenders I have access to would have taken this loan without hesitation, but in this new world, this loan has been accepted but then “kicked to the curb” twice. The borrower is a little frustrated and I can’t blame them. Trouble for mortgage officers in today’s market is that compared with this borrowers last experience, I look like I’m incompetent. What looked like an easy loan 60 days ago has turned into another mortgage nightmare for both the client and me. Originally the client wanted a 100% refinance with cash out, we are down to our last lender who will even consider it at 95% which leaves the borrower far less cash then they really want. We will get the loan done but it has not been a pleasant experience for any one involved.

This interim period that we are in now, between when things were easy for everyone and the new way where the few sub prime lenders that are left are seriously tightening their belts, is awkward to say the least. Those of us in the mortgage business have to learn to look at each loan application with more discretion as we navigate the new and ever changing guidelines that will seriously change the home finance landscape over the next few months.

Hopefully everyone can hang on for the ride.

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Subprime Lenders are Dropping Like Flies

March 14, 2007 at 5:05 pm · Filed under New Century, mortgage, subprime mortgage

In case you haven’t been watching the markets last week and yesterday, major sub-prime lenders are suffering and dying at an alarming rate of speed. D1, a subsidiary of HSBC reported writing off $10.6 billion in bad sub-prime loans in 2006. New Century, which is one of the top 5 sub-prime lenders in the country is rumored to be closing today, and Fremont Investment, another big sub-prime lender announced it was closing it’s door yesterday. In addition, there have been many smaller sub-prime lenders that served the market with useful niche products who have also already gone out of business in the past few weeks. What does it all mean?
Well, all the federal and state government efforts to “fix” the mortgage industry may be a big waste of time as the industry is in the process of self correcting through market forces, imagine that. It is starting to look like the big problems that our wise government was blaming on unscrupulous mortgage loan officers was as much or more of an issue with overzealous lenders who were desperate to keep showing higher revenues and profits, and had to turn to more and more risky products to do that because all the “A” borrowers had already been taken care of when mortgage interest rates dropped over the past few years.
Secondly, if you think the foreclosure rate is high now, fasten your seat belts! One of my best sub-prime lenders and also one of the top 5 lenders in the country told me yesterday that it is going to be almost impossible to find 100% financing for the sub-prime borrowers. What this means is that as all the sub-prime 2 year ARMs come due and threaten to adjust UP roughly 2% points, seriously crushing the cash-flow of these home owners, they will have nowhere to go. Over the past 5 years these people were able to do a cash-out refinance to lower or at least keep their interest rate and payment the same while they tried to get their spending behavior under control and improve their credit scores so they could come back to the market and finally qualify for the coveted “A” paper 30 year fixed mortgage. With lenders closing out the 100% and 80/20 loans, and with home prices being flat or declining in most markets, all these sub-pime home owners will have no where to go but get second jobs or walk away, as in many cases they owe more than their home is worth.
When the dust settles, there will be far fewer sub-prime lenders with far fewer programs that will be much less risky for the investors and those who qualify to purchase a home in this “NEW MARKET” will actually be able to make their monthly payments in a timely manner. Go figure!
Does anyone want to go tell the people in government before they spend millions of dollars fixing a problem that will be mostly self corrected by the end of March?

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