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As I mentioned in my last post, Option One has switched their underwriting guidelines from subprime to Fannie-eligible only according to this email below. While its understandable, I can’t see how you make a profitable business model out of it right now. There are tons of players who have been servicing the A-paper side of things forever; and new players are going to find it hard to gain any foothold at all.
Why would you send A-paper stuff to Option One if you’re A-paper traditionally goes to Wells Fargo? The only two viable I can think of are 1) pricing and 2) underwriting turn times. Both of these cause big problems for Option One. If the pricing is much better there is little to no profit in each loan; as the margins on agency paper are lean to begin with. Further, fast underwriting turn times typically mean that there is reduced volume and underwriters aren’t busy.
It doesn’t take a math major to figure out that low margin on low volume means low, low revenue. We’ll see how that further complicates the H&R sale to Cerberus.
Here’s the email received from Option One this afternoon:
Option One - Business As Usual
There are many uncertainties in today’s marketplace. Here is what we do know:
The nonprime mortgage originations business continues to be extremely volatile. The only stable source of liquidity is FNMA, which is why we recently changed our guidelines to ensure that all loans we originate are FNMA-eligible. We do not see any improvement in market conditions in the relative near term.
As H&R Block stated in its press release this morning, one option it is considering is the sale of Option One’s servicing business (rather than the entire company) to Cerberus. If this were to happen, then H&R Block would work with us to determine the appropriate manner and timing for H&R Block to divest itself of the origination side of our business. Again, this is one possible outcome, but nothing has been decided by H&R Block.
As of today, we continue to accept applications, fund loans and honor our pipeline.
Ummm….switching from subprime (jumbo too) to agency-only doesn’t sound like business as usual to me; but hey, what do I know?
Articles like this is what is causing most of the problem in the mortgage market. Media that does not know the mortgage industry. If Option One recently changed their guidelines to conform with Fannie Mae that means they are selling non prime loans to them right now not just conforming loans. Fannie Mae does buy non prime loans, in fact I saw an article the other day stating that their non prime loans are actually performing pretty well 5% deliquency if I recall correctly. So ummmm……Maybe they will be profitable on the loans they are writing.
Lisa you are correct in your assessment of that comunication; “Option One recently changed their guidelines to conform with Fannie Mae that means they are selling non prime loans to them right now not just conforming loans.” That was the spirit of the message.
I would never send my A paper and/ or non- prime loans to a former subprime lender when I could send them to my prime rep at a real bank who knows prime guidelines.
It really doesn’t matter what anyone on this board thinks about this, Option is trying to stuff a 200+ bps margin model into a 70 bps margin model…this won’t work and the sales staff won’t do what it needs to do. Option is headed for a fail sale with their buyer and another worthless carcass heaped on the inferno engulfing failed companies like theirs.
Fred/Lisa - on the option one web site the guidelines haven’t been updated in 2 weeks. can you share with us the fannie/freddie subprime guidelines that they buy with? or do you know where to find them? I’ve looked on the FNMA web site efanniemae.com and can find no reference to their guidelines for buying subprime debt, although I know a very small percentage of their portfolios (~2%) are purchased subprime backed MBS.
I work for First NLC and we have done the same thing sense 8/1/07 and we have been sitting around the office doing nothing every day sense then too. It’s not working, I mean, I’m not a negative person at all. I’m just realistic! Are next option is FHA but the catch to that is… you cant charge more than 1% for origination… now I know some money is better than no money, but if I was a loan officer, and I got a loan for 75,000 and I had to split 750 dollars with my lender… lets just say it’s not worth the long night on the phone. Happy Labor Day!
Joel Arent prime guidlines the same everywhere? And shouldnt you know it since your so experienced? Your rep?????? WOW your comment its baseless. Good luck calling every mintue and asking your rep about prime guidelines :~)
Lets all face reallity Look for a new Career
Having had multiple bad experiences at Option One for thier requestds or blackmailing appraisers to violate the law I hope that the underwriters are a little more dilligent. Now the same practice will leave them heading for club Fed. For those of you not aware of FNMA guidelines they are all availabele through the intrenet at allregs.
I have no clue as to the variety of products they offer, but my REP built strong realtions that when a certain bucket was fully and not longer avaialble, then they would work on moving there deals to a new bucket. The sad thing is that us ole dogs still have relationship that will survie and allow us to sell what ever is left in Sub Prime and when it turns back, we will be ready! The questions is, Will YOU!
Joel, send me an email. It seems that you don’t know what you are talking about. I pity your clients….
We should all blame all the mortgage brokers.. They don’t know what they were doing. They just dug their own graves…. It takes only a weekend course to be a mortgage broker.. We are all going to starve!!!!!
Impac tried to do the same thing. Dabble in the conforming mkt to try and do some business. their pricing wasa so bad they laid off their AE’s after 2 weeks. you cant compete with current A lenders if you were previously a sub prime scmuck!!
Having underwritten A-Paper/Prime, alt-a and subprime(subprime at Option One), I can only hope that their underwriters are ready for the big difference in the guidelines and underwriting philosophy. I hope the rest of their origination staff is too-including their AE’s. All I can hope for is that it works out for them. If they’re successful in doing so, then others could be too.
I hate to see anyone go out of business. I have friends at Option One. Let’s face it. If another company goes out of business, it’s bad for all of us.
Blackmail??? Sounds ugly Grimes. Hope you meant something more like blacklisting, if you can prove even that. And if an appraiser is busted for considering an above ground pool of value, and/or not mentioning that the subject property is 15 miles from the nearest comp, etc… then no company should do business with that class of appraiser - inflated values don’t help either.
And mortgage brokers tend to be educated, and well versed in this field, The Loan Processor. They are versatile and will adapt to changes. I agree that they play a role in this fiasco, but if you are going to starve because of that, then you need to move on to another industry. Eat, please!
Sticking to facts might help reduce some of the nonsense being vomited out here by you two.
Who are you people because none of you know what you’re talking about?! WTF! Blame the brokers- I’ve been to thousands of closings and I’ve yet to see a borrower forced to sign for their loan after the closing agent explained it. I have had only 1 client in the hundreds of 2/28’s and 3/27’s I’ve closed ever take my advice to manage their credit, make their payments on time and save money so I can move them to something conventional before their loan adjusts. This is the home buyers fault that has continually said “I don’t care what it takes, I just want to buy a home” and the BANKS fault for making the loan programs available. Brokers are brokers. We did not create the risky loan programs and we advised the homebuyer how these loans work. The BANKS are at fault for creating the loan programs and the people in foreclosure are at fault for NOT accepting the responsibility of their own finances but everyone blames the broker because that’s easy and there is a tremendous lack of personal responsibility in this country. If any of you are in the business, there’s reason #3 why there are so many problems in this industry. Do us all a favor and go back to McDonald’s.
OPTION ONE HAVE BAD SERVICE AND THEY WILL GO DOWN NO MATTER WHAT THEY DO
MORTGAGE MAN N.J
The borrowers do need to take some of the responsibility. If they didnt understand that they were in an ARM that was going to adjust up to 3% shame on them….shame on the broker for not explaining. Shame on Capital Markets for giving and giving then yanking the rug from the lenders.
Option One has been the BEST subprime lender. Why do you think they have had MANY associates and AE employed for 10+ yrs. It is just a shame that it has come to this.
Prime guidelines are the same, however not all lenders allow all prime guidelines. Example: Chase has terrific MyCommunity pricing but they don’t allow 6% Seller Concessions (Which FNMA does). They also don’t offer the 35yr I/O or the 40yr I/O feature. It’s important to see what your lender will and won’t let you have access to, even if the guidelines are universal. In the case of Option One, they’re pretty much done with. Their warehouse lines will probably cut by Oct. 1st. Aurora (a formerly aggressive Alt-A lender) just spammed us an email offering 6% on their Conforming 30yr fixed paying 1.25bps! NOBODY is paying 1.25bps on that coupon. They’re desperately trying to buy their way into the conforming market. I can’t wait to see them go under too. Yesterday, IndyMac announced they’re switching to all-Conforming products. I can’t wait to see how that behemoth will survive on a .125 to .250 bp profit margin. Fewer lenders means more loans for me. Heheheh.
As a former AE; I just want to say that it is sad what is happening…..everywhere! This has been a long time coming and everyone wants to blame everyone. I mean, we knew that giving 100% stated loan to a borrower with two trade lines and two cents in the bank was risky and everyone got caught up. Did we really think it would last?
Steve Grimes, I am not sure who you worked with at Option One but they are one of the most reputable companies out there I know. They always tried to do the right thing and put the borrower in a better situation. They were big on identifying fraud to make sure there was none.
I worked with terrible brokers and loan officers that did whatever they could to get a borrower to sign their “2 on the front and 2 on the back” loans without exlplaining to them what they were getting into and I knew some great ones too so it is hard to put all the blame in one group.
Why blame the borrowers and the brokers? The brokers and loan officers offer the borrowers the programs that lenders and banks have available. If the 2/28 and 3/27 is what the lenders were pushing (lets face it, in the good times the pricing for these ARM products weren’t even competive with the 30 year fixed loans). than that’s what the borrower was going to take because it offered the lowest payment. If the lenders made these ARM loans qualify at the fully indexed rate, and asked for 2 months reserves for each loan product, we would not be in this mess we’re in now. Think about it.
Voice of Reason - You say that the brokers are not at fault for any of this mess and that it is the consumer and the lenders pushing these loans. Working in Capital Markets at the second largest Subprime Lender, victim of subprime fallout earlier in this year, I can say that my job was to fix the worthless or defaulted loans and repackage them to sell back in the markets. From the consumer down the food chain to the equity and investment firms buying these MBS, everyone has a place in the “blame game.” THe Lenders would not “push” to sell certain programs, if the Investors weren’t buying them. Investors were willing to buy anything and the feeding frenzy was on. In the movie “It’s a Wonderful Life” the banks were pushed out of business as consumers were pulling out all of their money out of fear in the market causing major “bank runs.” And now the investors are doing the same thing to many of these lenders forcing htem to buy back the loans they were so eager to buy in the first place. From the Investor, to the Lender, to the Underwriter, to the AE, to the appraiser, to the Loan Officer, everyone is at fault as their eyes all turned green.
Batter up- since you work anonymously for the 2nd largest subprime lender, which changes hourly, then answer this- Who created the loan programs- the lender or the broker? Who determined the guidelines for these loans- Lender or broker? Who sent representatives to the broker’s office pushing these programs in the broker’s faces so they’d sell them to their client’s- lender or broker? Who underwrote these loans- lender or broker? Who, if they thought the borrower/appraiser/broker were doing something fraudulent, had the ability NOT to fund the loan- lender or broker? TAKE THE RESPONSIBILITY MR. CAPITOL MARKETS!! You wanted those loans and your representatives called and BEGGED us for those loans. You can’t look inward and say “Hey! We F’d up making loans to people that can’t afford them. Maybe we shouldn’t have ignored all those +24 month collection accounts and that 55% DTI based on the 40 year interest only payment. Maybe that was a REALLY GOOD indication that this moron can’t afford this loan and is going to be in trouble 2 to 3 years down the road.” Did you say that? NO! You sent reps in to buy me lunch and give me pens/basketballs/fans/coffee mugs with “100% NINJA with a 520 score” written all over them as they reminded me that they’d give me a free .5% on everything submitted in the next 14 days so when I had the borrower that doesn’t qualify I’d say “Hey wait- Batter Up has a loan program for you but you need to be aware of program stipulations.” You knew the borrower- who’s heard “Stop paying rent!” on every TV and radio station was going to say “Sign me up! I can do it!” even though they had not demonstrated an ability to pay their $300 Providian Visa. D’nile ain’t just a river in Egypt buddy. You offered basically free money and now you blame the people who gave it away for you? What did you get from the Easter Bunny this year?
Everyone wants to play the blame game, however, no one wants to turn the mirror on themselves. In reality, everyone involved in this business has played a role. Politicians, brokers, lenders, capital markets and borrowers. Period. Option One did tried to keep their guidelines as conservative as possible, however when you loose market share to the 560 100% full doc lenders, the ulmighty greed rears it ugly head. It starts form the top down and makes it way through the channel. Have you ever closed a stated FIXED income deal? Come on…that product should never existed. Terrible loan for the borrower and lenders…however the broker gets paid upfront at close, correct? That is just one example of what should not have been out there. Now consider what the borrower did after the close. Mr. Borrower buys a home on a 2/28 at a 45% DTI, then 3 months later opens a Home Depot card to do improvements, buys a new car for $500+ a month and charges new furniture to place in the new home…cap that off with the “middle america” jobs either being sent overseas or if they remain here, the wages reduced. That will have resounding effects on the economy. Easy money was a cancer to all of us, but the industry will survive. The people who are currently leaving the capital markets, will be back. They made enormous amounts of money over the past 5+ years. They will pull their monies out…place it in a more conservative market…get bored with their returns…look back to see how they made all that money…adjust the portfolio to effectively ensure their risk…roll out the adjusted products…and game on. Learn from what is going on now…the sun will shine again and if you learned from the past mistakes you will ride happily into the sunset. Now, follow the money.
Voice of Reason, you sound like an educated broker, you are a minority in this industy right now, all we need to do is have a good cleansing of the industry (brokers and lenders), there are so many people in this industry right now that have absolutely no reason to be here. We need to have a better licensing requirement. The brokers/lenders/AE’s that use this industry as a career and not as a job, those are what we need to keep. Yes lenders did get out of control, but so did brokers, lenders got greedy on the products but brokers got even greedier with ysp. Have you ever said I am not going to do that deal because I am only going to make one point on the deal? Why wouldnt you do it, $2k is not worth your time. Bottom line is everyone needs to change the way mortgages are done, lenders who didnt change the way they do business are gone there will be a few more to fail, next wave of shut downs will be the broker shops.
Lisa- Thank you for the compliment but it’s still not the broker’s fault. Why did you get into this business? I did initially because I make an excellent living with no college degree and minimal training. I stay in the business because I get immense personal satisfaction out of helping the many people I have assisted to buy homes that were afraid that they were going to get ripped off. I work with a number of ethical people and I’ve worked with people looking to bang a client for everything they could get. The 1st client I ever worked with still refers me business.
Do you work for free? If your employer came to you and said that they wanted you to do the same job but they weren’t going to pay you for it, would you do it? Why did you accept the job that you have? If the money were half would you still do it?
I have turned business away because I determined that there was no profit for me and the company however I have worked for no commission and I have taken losses on loans. I’ve made $200 on a loan and I’ve made $34,000. I’ve mostly advised taking fixed rate loans over the last 12 months but I have put clients in 2/28’s and option ARM’s. I have counseled them all on the benefits AND the risks. Whether they chose to accept the education I provided is up to them. I am not their parent.
You have to be 18 to buy a home so you are an adult and if you sign the note and mortgage, then YOU are responsible. The broker’s are NOT the only people that made money yet we seem to be the only ones faulted because we did. I have 12 state licenses and I am as regulated as a lender if not possibly more depending on the state. This idea that we all have skipped off to the bank to cash our YSP checks in our Ferraris is silly. The responsibility rests with the banks for creating the programs and consumers for accepting them. If you buy a car and it explodes on the interstate while you drive it, do you blame the guy that sold it to you?
Lisa- Thank you for the compliment but it’s still not the broker’s fault. Why did you get into this business? I did initially because I make an excellent living with no college degree and minimal training. I stay in the business because I get immense personal satisfaction out of helping the many people I have assisted to buy homes that were afraid that they were going to get ripped off. I work with a number of ethical people and I’ve worked with people looking to bang a client for everything they could get. The 1st client I ever worked with still refers me business.
Do you work for free? If your employer came to you and said that they wanted you to do the same job but they weren’t going to pay you for it, would you do it? Why did you accept the job that you have? If the money were half would you still do it?
I have turned business away because I determined that there was no profit for me and the company however I have worked for no commission and I have taken losses on loans. I’ve made $200 on a loan and I’ve made $34,000. I’ve mostly advised taking fixed rate loans over the last 12 months but I have put clients in 2/28’s and option ARM’s. I have counseled them all on the benefits AND the risks. Whether they chose to accept the education I provided is up to them. I am not their parent.
You have to be 18 to buy a home so you are an adult and if you sign the note and mortgage, then YOU are responsible. The broker’s are NOT the only people that made money yet we seem to be the only ones faulted because we did. I have 12 state licenses and I am as regulated as a lender if not possibly more depending on the state. This idea that we all have skipped off to the bank to cash our YSP checks in our Ferraris is silly. The responsibility rests with the banks for creating the programs and consumers for accepting them. If you buy a car and it explodes on the interstate while you drive it, do you blame the guy that sold it to you?
Stop trying to blame one another.
We are ALL in this together even if you decide to get out of the mortgage business. Why? Because the mortgage industry leaves an impact on the home values, on the ecomony, on our wallets, on our ability to borrow etc. And the reverse is true. Those things all have an impact on our mortgage business.
No single entity is to blame.
This is an ugly time right now for all of us. A lot of us are either on unemployment, have run out of unemployment, don’t get unemployment, are making a lot less than before and we are understandably upset. I know I’ve been in a few of those categories. I can only hope that I don’t get into the unemployed category right now.
The best thing for all of us to do is to figure out how to get out of this mess. We can start by making good loans. Doing the very best we can at whatever level we work at. RE agent, broker, loan officer, processor, AE, Underwriter, Doc drawer, funder etc.
John
Hold on a second…. is someone here claiming that Blog-o-sphere has caused the problems of the mortgage market?!?!? that NEITHER the reckless lending, NOR ridiculously manipulated Fed rates, NOR Sir Alan Greenspan encouraging people to refi their houses, get into ARMs and “cash out” were the primary causes. Whooooooooooooooooweeeee! That’s rich. Thanks for the laugh. Enjoy your LDW! Carry on…
at the end of the day the borrower needs to face realty there the ones signing docs? Did we all forget english?????
Come on peeps are we back to kindergarten? dam i probabaly have speeling issues maybe ill go back to school
John you are the man you think like me. IF your not in the buisness you have no say in whats going on the mortgage industry. The news cant talk about the war anymore cause weve all had it with that. Now there changing focus to the mortgage industry. Do anyof these rreports even know the terms of there own loans??????? HAHAHAHAHAH I bit not. There as kookoo as anyone that doesnt look at the papers the sign. So lets focus on all the NEWS companies that have made a killing of air TIME WITH THE REAL ESTATE MARKET BLOW UP OR HERE IT GOES THEEEEEEEEEEEEE Subprime market(booogie mans gonna get you).Home owners make sure you dont look in your closet at night.
booooooooooooooooooooooooooooooooooo