MOST IMPORTANT POST EVER

NEW -> Contingent Buyer Assistance Program
A little on the melodramatic side, these changes have been happening for 3-4 months now. Long term rates have trended downward the last 2 weeks.
 
<p>Some great quotes in this article: second mortgages are "radioactive" -- "The private secondary market is not functioning."</p>

<p><a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=aCzJuIpuhmcc&refer=home">http://www.bloomberg.com/apps/news?pid=20601087&sid=aCzJuIpuhmcc&refer=home</a></p>

<p><strong>Indymac to Make `Major Changes' to Mortgage Lending</strong></p>



<p>By Jody Shenn and Bradley Keoun</p>

<p>Aug. 2 (Bloomberg) -- IndyMac Bancorp Inc. is making ``very major changes'' to its lending standards and may raise interest rates it offers on home loans because of a slump in mortgage securities, according to an e-mail to employees. </p>

<p>The market for mortgage bonds has become ``very panicked and illiquid,'' Chief Executive Officer Michael Perry said in an e- mail to employees. The Pasadena, California-based company will stop making certain types of mortgages completely, he wrote. </p>

<p>``Unlike past private secondary mortgage market disruptions, which have lasted a few weeks or so, our industry and Indymac have to be prudent and assume that this present disruption, which appears broader and more serious, might take longer to correct itself,'' Perry said in the e-mail. </p>

<p>The additional credit tightening by IndyMac, the ninth largest U.S. mortgage lender, comes in a period when it's ``difficult'' to trade even AAA rated mortgage bonds that aren't guaranteed by government-chartered Fannie Mae and Freddie Mac, or federal agency Ginnie Mae, Perry wrote. </p>

<p><strong>``The private secondary market is not functioning,'' he wrote.</strong> </p>

<p>Non-guaranteed securities linked to subprime mortgages to borrowers with poor credit have caused losses among hedge funds, insurers and banks from the U.K. and France to Taiwan and Australia. </p>

<p>Other ``major'' mortgage lenders are taking similar steps this week, with ``some leaving subprime, Alt-a, and other products altogether or restricting some products to only their own retail channel,'' Perry wrote in the e-mail yesterday. </p>

<p>Piggyback Mortgages </p>

<p>One area of product change is so-called piggyback mortgages, said David Stevens, head of a home-lending venture for Fairfax, Virginia-based realty firm Long & Foster Cos. </p>

<p>``There's just no market for'' the second mortgages used in lieu of down payments or mortgage insurance, he said today. <strong>``Nobody's taking them. They're radioactive.''</strong> </p>

<p>The memo from Perry, which was addressed to the staff of IndyMac's bank and was also sent to the board of directors, was confirmed by company spokesman Grove Nichols. </p>

<p>Perry wrote that U.S. Senator Christopher Dodd called him yesterday morning ``seeking an understanding of `what is really going on and how can I and Congress help?''' Dodd, a Connecticut Democrat, is chairman of the Senate Banking Committee. </p>

<p>Washington-based Fannie Mae Chairman Daniel Mudd is ``telling me that they are `prepared to step up and help the industry,''' Perry wrote. </p>
 
I'm not a mortgage broker, but if whatever earth shattering financial event that happened yesterday results in there being less mortgage brokers, I'm all for it! I never understood the benefits of using a mortgage broker vs. going directly to the bank. A broker is just a paid salesperson.
 
Maestro - I think you underestimate the importance of this news. I cannot no longer get any shares of builders or lenders to short, and the puts are not ridiculously expensive and over-valued.<p>




marty - to understand the importance of this, in simplest terms, (and lm, correct me if I am wrong), imagine if when you were buying your home not to long ago the lender said the rate they quoted you was no longer available. The new rate would be 2% to 3% higher.
 
<p>Afternoon news. It appears there will be some additional major changes in the lending business tommorow, as well as a few more lenders going 6 feet deep. </p>
 
awgee -- I think you have it wrong. I called a friend of mine at Countrywide today and he says the rates haven't changed this week. If I am understanding the stealth news development correctly, it affects pricing offered only by mortgage brokers, i.e., you can continue to call the bank directly and get the same rate. I don't have a problem with that. It seems to me that banks may be telling mortgage brokers to take a hike because of all the crappy paper they've been pushing on to the banks.
 
<p>marty--</p>

<p>You are correct. Retail prices remain unaffected for the most part. I don't like brokers either; however, my company does more mortgages through wholesale than through retail. Many companies are like this. It is very expensive to operate a retail bank. The majority of home loans are originated through brokers. That is scary.</p>

<p>The problem is, mortgage brokers (regardless if they are honest or not) are home owners themselves and contribute to our GDP. We could be looking at the biggest mass layoff of an industry ever. Thousands of former loan officers won't be able to make mortgage payments. I have friends that are struggling as is, and this is just the final nail in the coffin.</p>
 
<em>"I have friends that are struggling as is, and this is just the final nail in the coffin."</em>





I also know a family that is struggling because of the industry's woes. It is very sad because I see what is coming, and even they see what is coming, and there is nothing anyone can do about it. They are going to lose their home, and they will have to stop sending their special needs child to the school of their choice, etc. I like these people, so it is sad to see them in this predicament. Of course, they could have saved money a few years ago when the household was bringing in $250,000 per year, but ...
 
WOW this is amazing. So pretty much what you are saying is that everything is reverting back to old style lending where you had to get a loan through a traditional bank.





Correct me if I am wrong, brokerage firms could still sell and fund loans as long as they put up their own cash to do so?
 
<p>Info from my friend who's a broker. Subprime, as we all know, is kaput, and Alt-A is now starting to follow suit. Reason for all this activitiy is because investors will not touch Neg-am or 2/3 year ARMs with a 40-foot pole. Brokers now have to pay to get these loans through. Here's a "short" list of those that have recently suspended submissions:</p>

<p> 1.)Aegis Funding


2.)American Mtg Network


3.)Axis Mtg & Investments


4.)Bay Capital


5.)Brenward Mtg Corp


6.)Broadstreet Mtg


7.)Crevecor Mtg


8.)Finance America


9.)First Source Funding Group


10.)First Street financial bought by imperial lending


11.)GMAC


12.)Loan City


13.)Master Financial


14.)Millennium Funding Group


15.)Moneyline Lending


16.)Mortgage Lenders Network


17.)Novelle Financial Services


18.)Platinum Capital Group


19.)Popular Financial Services


20.)RBC


21.)Secured Funding


22.)SLMC


23.)South Coast Mtg


24.)South Star Funding


25.)United Financial Mtg


26.)USB Home Mtg </p>
 
<p>There are several reasons why this is such a crisis. You can say that we are being overly dramatic but we won't see the casualties right away.</p>

<p>Any loan that is not a conforming loan which is any loan greater than $417k or could not get an automated approval just shot up 100 to 200 bps in rate. This isn't just ALT-A it includes prime 30 year fixed rates and the ARMs are even worse.</p>

<p>Banks like Union Bank, B of A and Wells who keep and service their loans are not affected because they don't sell much or any of their loans on the secondary market. At the moment going direct to Countrywide will have decent pricing because they have the capacity to hold their loans and sell them later. That is if and when the market improves they can sell their loans. I don't know how much capacity they have and how long they can lend money before they have to sell their loans or be forced to stop lending money. If the secondary market continues to be in this state for an extended period of time Countrywide will be forced with that decision. </p>

<p>Almost all lenders pulled their ALT-A products Wachovia, IndyMac, Greenpoint, Wells Fargo etc. </p>

<p>One serious fallout in this are the homes in escrow whether it is a new home or a resale. If you had a loan approved and were told the rate was 6.5% but either you didn't lock it or the lender closed and now your rate is 7.5% or higher what would you do? Many will cancel unless they can find an alternative solution. Some of the builder's lenders will be ok depending on who they use as a lender. Many are just brokers or if they are a direct lender they don't have the capacity to hold loans for very long. The cancellation rates at the homebuilders will shoot up. </p>

<p>The other serious fallout is going to be job losses. The pricing at some lenders is so awful it will force them to shut down. It's not if OC hasn't already seen enough layoffs that we need more. This can be brutal to the economy. </p>
 
...rumblings all over the blogosphere this afternoon that more doozies will be dropped on Monday morning. I wonder what else can happen at this point.
 
<p>"It is very expensive to operate a retail bank. The majority of home loans are originated through brokers. "</p>

<p>I still don't understand why banks use brokers, as they seem like they are highly overpaid middlemen. What do they bring to the table to be worth what they are paid? </p>

<p>I'm thinking the reason the industry uses them is because they (the brokers) can be crafty about selling products, such as sneaking in the exorbitant early payment penalties without bringing it to the buyer's attention. By the time the victim finds out, the broker has changed his cell #, hair color, and is driving a newer BMW (which you helped pay for!). Brick and mortar banks don't want to deal with these angry customers - they can't hide.</p>

<p>Certainly the banks could pay a college grad less than half of what these brokers make to just sit at a desk in the bank to make honest and competitive loans to worthy folks.</p>
 
<p>Well. </p>

<p> I've been skeptical for a long time, but today I have changed my mind. At least I have the integrity to say so.</p>

<p>Seems the private secondary market is indeed going away. When a company like Indymac says they will basically only do conforming going forward, it is nothing less than an earthquake.</p>

<p>I have literally been shaking all day at the broader implications. We are talking about the possibility of the collapse of our entire economy.</p>
 
Janet,





Welcome to our forums. If you are the Janet I think you are, your conversion is remarkable.





Seeing what lies ahead is frightening. It will not be pretty. Like any other financial upheaval, we will survive, and in the end we will prosper again. Maybe next time we won't build our entire economy on borrowed money.
 
And with the shutting off of the easy money spigot, I think it's time for IR to reprise "<a href="http://www.irvinehousingblog.com/2007/05/07/your-buyers-loan-terms/">Your Buyer's Loan Terms</a>" on the front page.
 
We were on a conference call with a major commercial property lender on Tuesday and they warned us of this happening (our sister company is a commercial real estate banker).





They said something about a tough week coming ahead and I had no idea what they were talking about. It all makes sense now. It seems like all the bad debt (sub prime & alt-a) is affecting our commercial financing end also. Rates are being quoted 1-2% higher these last couple days because the lender feels that they need to protect themselves.





We have been told that lending terms will be on "day to day" updates until further notice.
 
You must log in or register to reply here.
Back
Top