Did you know that a locked rate is a commitment for a loan to be delivered to a lender? Mortgage companies and loan originators are often judged by how many loans they deliver or what their lock fall-out ratio is. A normal expection used to be around 70-75% of locked loans to be delivered–now I’m hearing reports of 30-40% of locked loans actually being delivered to the lender.
This is dangerous for mortgage brokers and correspondent lenders. Why? Wholesale lenders are cutting back and “cherry picking” which companies they’ll work with. A significant factor is lock-fall out. If odds are, a locked loan is not going to be delivered, why should they work with that mortgage company?
Sometimes the wholesale lender may be ordering the mortgage company to be “cut off” of future business and sometimes it may be the wholesale lender having their Account Executives that they need to reduce their client base to a certain amount of accounts (as a way to reduce the commission they’re paying the AE’s).
There can be many reasons for a locked loan not to be delivered, such as:
the loan could not be approved because of the property (appraisal issues) or the borrower.
private mortgage insurance issues.
the borrower decides not to proceed with the transaction.
Here’s how one wholesale lender rates fallout:
0-24.99% = Full approval.
25-34.99% = Monitor
35-49.99% = Watch
50-74.99% = Probation
75% or more = Inactivated. Good by wholesale relationship with that lender.
Wholesale lenders don’t care if it’s due to the borrower not proceeding with the refi or if it was their underwriting that “killed the deal”…it often counts towards that dreaded lock fallout ratio.
A disturbing trend I heard from a local title insurance company is “double applications”. Where a borrower is proceeding with a refinance transaction with two different lenders. If both loan originators have the loan locked, someone is going to lose! Not to mention, the expense to the title and escrow companies who are working on a transaction a consumer is not going to honor. The only way this is caught, is if the title or escrow company happen to be the same one that the two loan originators the consumer is using. Regardless of if both loans are locked or not, it’s unscrupulous behavior.
Borrowers–please do not have two loan applications going on at the same time with two different loan originators. When you do decide to lock in a rate with a mortgage professional, understand it IS a commitment.
“Home lending remains an integral part of our firm’s overall financial strategy, and as such, we have a responsibility to our customers, shareholders and employees. Over the last two years, we have diligently reviewed and adjusted our home lending strategy and practices to address the unprecedented challenges of today’s market. Today, we are announcing a strategic shift that we believe will serve our business and our customers well for the long term.
Moving forward, we have decided to focus on loan originations through the Chase bank branches, our Consumer Direct business, and retail-originated loans acquired from Correspondent lenders. Our new strategic direction is supported through the recent merger with Washington Mutual, which increased our bank branch inventory nationwide and enables us to serve nearly 70 percent of the American population.
As a result of our strategic decision, we will no longer accept any new locks and registrations from or purchase any loans originated by brokers effective Friday, January 16, 2009. As a result of these decisions, we are closing our Wholesale business….”
As of this moment, Chase will continue their correspondent relationships (our company is correspondent with Chase) but mortgage brokers just received another punch to the gut. You can also see how little notice loan originators receive in this type of climate.
The question is, how many other banks will follow Chase’s shift away from mortgage broker relationships.
“…effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel. We plan to honor all of our existing rate-locked loans and will continue to fund these loans in the coming weeks. While the managers and employees in these units have worked incredibly hard, these units are not currently profitable due to the continuing erosion of the housing and mortgage markets.”
IndyMac is planning on retaining the FHA portion of their reverse mortgage division, Financial Freedom.
This also means more people will be displaced from the mortgage industry.
“Unfortunately, the above actions will necessitate the reduction in our present workforce from approximately 7,200 to roughly 3,400 or so over the next couple of months…”
The press release mentions a couple locations where employees will be retained…no word or mention of the Bellevue office.
IndyMac had a lot of unique products and were no stranger to the subprime and alt-a markets. They had their own automated underwriting system, eMits, that provided “risk based” decisions and pricing. They are reported as being the seventh largest savings and loan in the nation with both retail and wholesale operations.