Late Wednesday several lenders, including Taylor Bean & Whitaker, American Brokers Conduit and Option One, announced major changes to their Alt-A guidelines by increasing the minimum required credit scores and reducing the maximum loan to value ratios on most of their programs. Below is the announcement sent by one of the lenders to all its brokers:
Alt-A Underwriting Changes
Due to rapidly deteriorating market conditions, we will be making the following adjustments to our Alt-A underwriting guidelines:Minimum FICO score of 620 for Full Doc loans
Minimum FICO score of 620 for Full Doc loans
Minimum FICO score of 640 for Full Doc investment properties
Minimum FICO score of 640 for SIVA
Max LTV/CLTV 90% for SIVA Investment property
Minimum FICO score of 680 for SIVA Investment Property
Max CLTV of 95% for SIVA and SISA doc types
Minimum FICO score of 660 for SISA
Investment properties are not an eligible occupancy for SISA
NIQ and No Doc loans will require a minimum FICO score of 720
Max LTV/CLTV 50% for No Doc
Investment properties are not an eligible occupancy for NIQ
No Doc loans only allow for primary residency
SIVA, SISA, NIQ & No Doc loans not eligible in Ohio
Rick Soukoulis, the CEO of LoanCity Inc. in San Jose, said that the industry is still learning to manage the conflicts between trading partners that arise from early-payment defaults.
LoanCity revised its practices in this area in August, he said. "As soon as we get an EPD [buyback] request, we notify an account executive, contact the borrower directly, get all the servicing information, and work with our brokers to get the borrower a new mortgage that is proper to their payment habits, and then we work with our buy side to go through each request. "If there’s really a problem, we indemnify or make it whole. … You have to push it back to the broker, because the broker values his relationship with us," Mr. Soukoulis said
Buybacks could be "an existential threat" for some lenders that do not have big balance sheets, Mr. Poulos said. "If you have to buy back even 5% of your pool, that’s a tremendous amount of capital," he said. "It would hurt a lot if you had to sell it at 90 cents on the dollar. But if you have to sell it at 75 cents on the dollar … that’s a tremendous amount of pain."
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Posted by RESPA Dog
With college costs looming for their four children, Bryan and Susan Andrews were looking for a way to cut their monthly expenses.The sales pitch that came in the mail seemed perfect: A mortgage at 1.95 percent, fixed for five years.
"It sounded like a really good program," Susan Andrews recalled recently.
But after the deal closed, in 2004, the couple realized to their horror that the $191,000 loan they got from Bethesda-based Chevy Chase Bank was an adjustable-rate mortgage. The rate has climbed to 8.3 percent and, because of the way the mortgage is structured, the couple now owe more than they did when they signed for the loan.
They went to court, saying they were deceived. A federal judge has sided with the couple and is allowing a class-action suit involving up to 7,000 borrowers against Chevy Chase.
The bank is appealing, and on Friday, an appeals court granted its motion for an expedited appeal. The bank says the terms were clearly stated in the contract and that if the family has a grievance, it should be taken to the mortgage broker who sent the original sales flier and acted as an intermediary between them and the bank.
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By Mish
The following post is an email from Michael J. Dorff, a mortgage broker with Trans World Financial about the state of affairs in Orange County California. Monday evening I will have an update from Mike Morgan to share.
Mish,
Here is a synopsis of the mortgage side of things here in Orange County and for that matter California in general.
What people don’t see, the NAR in particular, is the upcoming train wreck. I am talking about all the sub prime loans for refinances as well as purchases that were taken out 2 to 3 yrs ago and are now all coming due to reset. My guess is that 99% of all sub prime loans are all done on a 2 or 3 yr fixed interest only type program. People thought that it made no sense to take a 30 year fixed loan those homes when the short term rates were a lot lower, but they were all wrong.
The time bomb is about ready to go off. All of the subprime loans taken out 2 to 3 years ago have margins of at least 5% or higher and usually based on the London LIBOR program. Those loans are starting to reset now at fully indexed rates somewhere in the high 9% to 10% range. When those loans were initiated 2 to 3 years ago, they all had start rates of high 5% to low 6%. As of now, the LIBOR alone stands at 5.388 for the 6 month and 5.336 for the 1 year. Take those LIBOR indexes and add the margins to see what is going to happen.
Here is a case in point. One of my clients who took out an interest only subprime loan from another lender just received her reset notice. Her current margin is 5.25% and her index for the 6 month LIBOR index is 5.388%. This means her new interest rate will shoot up to 10.638%. Her note states that her first adjustment cannot go higher than 9.2%. So she will be at 9.2% for the next 6 months. With an initial loan balance at $251,000 at 6.2% interest only, she had a monthly payment of $1,296.83. In December her new payment will be $1,924.33 for the following 6 months before it adjusts again. This is a $627.50 jump in monthly payment. She simply can not afford this payment.
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