After Option One announced that it was no longer offering the 2-year fixed ARM (2/28) as part of its product mix other big subprime lenders jumped on board the bandwagon. The 2/28 train is officially dead. Here are other lenders that sent me notices about program changes:
- Option One cancels its 2/28 – now offers 3-year fixed as minimum fixed-term loan.
- Countrywide cancels its 2/28 (email to brokers) – now offers a 3-year fixed with 3-year pre-payment penalty as minimum fixed-term loan.
- Argent Mortgage cancels its 2/28 (PDF) – announces its new 5/25 5-year fixed ARM (no word if the 3/27 is gone)
- Washington Mutual cancels its 2/28 and 3/27 loans – now offers 5-year or 7-year fixed loans as minimum fixed-term loan options.
And finally the big news courtesy of Washington Mutual:
In an interview, Chief Executive Kerry Killinger said that effective immediately, Seattle-based WaMu will require full documentation of income and assets from prospective subprime borrowers, eliminating riskier “stated income” loans.
This doesn’t come as a huge surprise to me. Long Beach Mortgage was notorious for underwriting loans of dubious quality; and WaMu has been suffering from that poor quality. In fact, our warehouse bank had them on reverse-bailee status for funding loans with Long Beach. For those that aren’t in the correspondent-lending arena a reverse-bailee agreement means that the warehouse bank will not send the mortgage note (collateral) to the bank until the warehouse receives the money for the loan. This is a very unusual arrangement for warehouse banks to have with lenders, especially of that size.
The warehouse bank rep told us that they were on reverse-bailee because too often loans that were approved by Long Beach for purchase but then rejected were highly unlikely to sell to other investors.  The warehouse bank couldn’t be stuck without collateral for potential risky loans. And I was told this in September of 2005.
So what other banks have you heard that have canceled the short-term ARMs? And who drops stated-income next?
Last 3 posts by Morgan
- Subprime Bananas - June 28th, 2009
- Roubini: No confidence in government exit strategy - June 24th, 2009
- Goldman bonuses largest in firm's 140-year history - June 21st, 2009
Related posts:
Loading ...