I received this email today from my friend Stephen Bullock at Diablo Funding Blackhawk:
I just wanted to alert you to some significant changes in the lending world. Last week Freddie Mac, the second largest government backed mortgage underwriter, made some significant changes to its underwriting guidelines. Concerned by their potential exposure to non-performing loans as the number of borrowers defaulting is increasing sizably, they tightened the parameters required for Freddie Mac to purchase these loans from the originators. The investors who buy Mortgage Backed Securities on Wall Street are fearful that their portfolio of loans will default and they will be left holding the bag. The shocking statistic I read last week was that almost 50% of the mortgage loans currently held by Freddie Mac would no longer qualify under the new guidelines.
What does all of this mean to you… Sub-Prime lenders are scrambling to accommodate the new Freddie Mac guidelines. I’ve received multiple notices from lenders whose product lines are being pared down or eliminated to meet the new conditions and demands coming indirectly from Wall Street. Today there was news that New Century Mortgage is tittering on the brink of bankruptcy, looking to join competitors who have already closed their doors:
- Own it Mortgage – closed its doors
- Sebring Mortgage – closed its doors
- Axis Mortgage – closed its doors
- Oak Street Mortgage – closed its doors
- Right Away Mortgage – closed its doors
- Secured Funding – closed its doors
- Encore Credit – closed its doors
- Acoustic Home Loans – closed its doors due to a sudden increase in repurchases
- Ampro – gone acquired by United Financial Corp.
- Silver Trust – closed it's doors
- Freedom Mortgage – not doing 2nd TD's anymore.
- Decision One – closed 6 regional centers. Division of Option One.
- Mortgage Lender Network (MLN) – "stopped funding residential loans" on 12/29 (they didn't actually say they were closing) but they have closed.
- E-loan – announced it will close their sub prime wholesale division
- Meritage – Sold to Lime Financial
- Mandalay – Closed it Doors
- Plus rumors of others struggling financially
Action required… If you have a transaction which will require Sub Prime lending, my strong recommendation is to consult with your mortgage specialist immediately to confirm the program still exists and if it does, lock it right now before that changes. I know I’ve filtered my pipeline to ensure no one is surprised down the road.
Here's another story on the net:
What's Left on the Sub-Prime Lending Menu? Not Much – Reflecting the tough times still ahead for the sub-prime lending sector, I received an email from a sub-prime lender this morning listing all of the scenarios that are "still can dos".
3 Comments
John,
I heard a rumor today that both New Centuary and Fremont Bank went under and closed their doors. A sign of the times. Invariably it seems that in challenging markets, the new organizations and agents are the first casualties. Thank you for this article it was much needed!
Steven made a comment that Stated Income Loans will no longer exist at the Marketing Meeting today. Can that really happen, or will that cause a recession of its own by removing that option for buyers???
When considering interest-only programs, we need to look at two issues: Prime and sub-prime loans. With respect to prime loans, lenders are still very willing to lend on stated income applications, especially when there is a high credit score, documentation from a CPA regarding employment, and verifiable assets. When these conditions exist, some lenders actually prefer stated income to full documentation.
As to the sub-prime issue, it has been well documented that many lenders are going out of business or elimating certain programs; i.e. 100% CLTV financing. In the process of keeping those programs they continue to offer, some sub-prime lenders have placed tighter restrictions on credit scores and stated income programs, some eliminating stated income programs altogether. I believe Stephen was referring to this situation at the marketing meeting, although I wasn’t there to hear his comments. Stephen is an outstanding loan officer and an associate of mine at Diablo Funding Blackhawk.