Blown Mortgage

Get it?  Wholesale and wholesale?  I kill me sometimes.  Fifth Third, a large mid-western-based bank has made some significant changes to its wholesale programs.  (h/t Chris)  You may recognize Fifth Third as the employer of Tom, one of our erstwhile contributors and frequent commenter.  These changes apply only to the wholesale channel, so I’m sure Tom can let us know if they’ve been made on the retail side of the game as well.

From the Fifth Third flyer (PDF):

Effective with Mortgage Commitments dated on or after March 31, 2008, Mortgage Insurance FICO requirements:

Expanded Approval loans – Minimum FICO has been established

· Purchase and Rate/Term Refinances 660 FICO

· Cash-out Refinances 680 FICO

Be sure to obtain Mortgage Insurance commitments prior to 3/28/08 for loans not meeting these new established FICO minimums.

Effective - April 1st Fifth Third will no longer be accepting registrations for the following products: 5/3 100, 80/20 & 75/25

All loans in the pipeline under these products must be closed/funded by April 30 ! No extensions will be granted!

Additionally, registrations for My Community and Home Possible > 97% LTV will no longer be eligible.

MI commitments for LTV?s > 97% must be obtained on or before March 31!

The interesting parts of these changes are the fact that Fannie and Freddie-backed My Community programs, which are designed to “foster homeownership” by providing 100% financing and sundry other underwriting compromises are being pared back by the banks that are supposed to facilitate this type of lending.

Further, mortgage insurance is required on any cash-out refinance for a borrower utilizing expanded-approval with less than a 680 FICO score, I imagine regardless of LTV, which is an indication of just how cautious refinance lending has become out there.  

Update: So check the comments for my ass-chewing.  I wrote this post in about 3 minutes totally distracted and it shows.  The point I was hoping to make is that Fannie and Freddie can offer all the products they want, all the liquidity they want, and they are still limited.  It doesn’t matter that Fannie and Freddie will buy 100% loans if no one wants to underwrite them.  That is the interesting part of this announcement.  You can put all the cash on the table you want but it does no good if no one is willing to back it.  The classic “pushing on a string” in action.  

Apologies for the poorly-executed post.  I didn’t expect this to end up on the Implode-O-Meter, half-assed it and got called on it.  Glad to take the punishment, just don’t a complete a-hole when calling me to the mat. - Morgan

For more on Expanded Approval loans:

Expanded Approval helps borrowers with less-than-perfect credit buy or refinance a home at a competitive interest rate. By taking a comprehensive view of the borrower’s creditworthiness Expanded Approval allows lenders to offer conventional financing to borrowers who would otherwise rely on higher-cost nonprime loans.

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Radian, the mortgage insurance company, will no longer provide insurance for stated income and stated asset loans.  The loans, sometimes called “liar loans” by skeptics, allow borrowers to simply conjure their income and assets used for qualification without any due diligence checking.

This may signal the tipping-point of a major sea-change in underwriting standards. While many banks have eliminated the stated income, stated asset loans due to poor performance or otherwise, the insurance companies jumping in to the act would all but guarantee the extinction of stated/stated loans in the conventional and jumbo markets. The stated loans may end up only being available through private channels and “hard money”.

This would be a major blow to the already struggling mortgage market, where a large portion of borrowers in the bubble areas (CA, FL, NV, etc.) hold loans that they would not qualify for using traditional full income and asset documentation.

From the Market Watch story on Radian discontinuing insurance for stated income, stated asset loans:

Radian Guaranty Inc. will not insure mortgages originated under “stated income” and “stated asset” programs starting April 30, the mortgage insurer said late Thursday. “While certain forms of alternative documentation used to verify assets and income are appropriate with a disciplined underwriting process, the stated programs will no longer be insurable as a result of poor performance,” said Radian in a message to clients. Stated income mortgages are loans that don’t require documentation of a borrower’s income. Radian Guaranty is the mortgage insurance subsidiary of Radian Group .

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Mortgage refinance applications soared last week according to the MBA on the heels of the Fed rate cut.  With all the volatility in the marketplace however; many would-be refianciers may be disappointed at the constantly changing rate moves in the market.  When a loan officer tells you to lock your rate these days, I would generally take their advice.  If you have a rate that you like, that makes sense for you, take it off the table by locking it in.

From the Market Watch article on increased mortgage refinancing activity last week:

 Reflecting a surge in refinancing activity, the volume of mortgage applications rose a seasonally adjusted 48.1% in the week ended March 21 from the prior week, the Mortgage Bankers Association said Wednesday.

Applications filed to refinance existing mortgages increased 82.2% on a week-to-week basis, according to the MBA’s weekly survey. Filings for mortgages to buy homes also rose, up a seasonally adjusted 10.6%.

After the Federal Reserve moved last week to help stabilize the mortgage-backed securities market, “we saw an immediate impact with a drop in mortgage rates,” said Jay Brinkmann, MBA’s vice president of research and economics, in a news release. He noted “a drop in the 30-year fixed rate of at least a quarter of a point.”
Specifically, the 30-year fixed-rate mortgage averaged 5.74% last week, down from 5.98% a week earlier, according to the MBA survey.

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