How Quickly Guidelines Change

When WaMU decided that most of Washington State zip codes are soft, they let Loan Originators know via email giving us just hours to submit loans under the old guidelines (pre-soft haircut of 5% or what ever the value is). I have another example of how little time we are given as LO’s to deal with changing guidelines in our industry. Keep in mind when you read this, this is from one lender: these programs/products are still available with other lenders.

At 6:42 a.m. this morning, I received an email from MortgageIt, a subsidiary of Deutsche Bank, announcing the following:

Dated 2/29/2008

Effective Friday, February 29, 2008 [last Friday]…

Discontinuation of the following products in their entirety:

FHMLC Home Possible

FNMA MyCommunity Mortgage

FNMA FLEX [All Fannie Mae Flex programs]

Loans APPROVED at this time of this notification that are negatively affected by the modifications (i.e. approved under the old guidelines) may still lock through the end of business Monday, March 3, 2008 for a maximum of 15 days at current rate/pricing.

Locked loans that re not approved at this time of this notification will have the price honored and may be underwritten to the old guidelines up to the original lock expiration date ONLY IF the loan package is submitted to the branch NO LATER than end of business Monday, March 3, 2008.

All loans must be closed and funded within the original lock expirations; RELOCKS AND EXTENSIONS WILL NOT BE GRANTED….

Again…this is just an example from one lender. What does this mean to me and other lenders? Obviously we won’t be using MortgageIt for these programs…we couldn’t if we wanted to. Other lenders are still offering (as of today) these programs. Much like WaMU declaring most of Washington soft…other lenders are not yet. Mortgage Professionals will opt for lenders who will provide the most options for our clients. Why work with a bank/lender who’s going to discount home values 5% when others are not?

This particular memo was backdated to Friday…or the email I received was distributed late. (I no longer have a MortgageIt Rep since they laid off their staff and shut down their local office in Bellevue). However, if I had transactions locked or approved with this company, you could see how I would have very little time to react for those transactions.

Just a sign of the current mortgage landscape.

If March begins roaring as a lion (as it seems so far), I do hope we go out as a lamb as far as our industry is concerned and that this is another “knee jerk” reaction and not a trend we see with other banks. Fannie Flex, MyCommunity and HomePossible have been great programs for many home owners.

44 thoughts on “How Quickly Guidelines Change

  1. I honestly don’t know how you keep this stuff straight in your head. If I were you, I’d go into something with a little less change, like maybe income tax preparation! πŸ˜‰

    (Said the person who left bankruptcy law because they make changes there once every decade or so.)

    Back in the good old days I assume the changes were less frequent, but did they give you any more notice?

  2. Kary, in the good ol’ days (way back to pre-August 2007), we would receive so much notice, that you almost forget the modification to guidelines was happening!

    Tax preparation–no way. πŸ™‚ It’s just not my bag, Baby. [My attempt at Austin Powers]

    Sometimes I wonder if it would be easier to work for a bank where you just have one source/one set of rates/one set of guidelines. I really believe that I’m better off working for a company that allows us to have many options and resources.

  3. I wonder if any other banks might follow up with some guideline changes. Maybe tomorrow?

    It is after all, the start of the next “season.”

  4. Jillayne, only time will tell. I’m not sure if they did this to appear better on Wall St? These are low down payment programs…however, they are Fannie/Freddie products.

    Some lenders have pulled back on the LTVs with these programs (due to the PMI changes that also just went into effect). I still have one lender that I work with who is still offering the Flex 100 (100% LTV)…as of yesterday. The “preapproval” that I’m working with via this program also have a “plan b” such as FHA or Flex 97 or Flex 95.

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  6. I’m a loan originator from Sequim and read your blog daily. Here’s what we learned from a memo from Flagstar Bank today.

    These changes are coming from the MI companies… MGIC, Genworth and RMIC all have lowered maximum LTV and raised minimum credit scores. The only one that has not made any changes right now is Radian.. so if you have a Flex, My Community or Home Possible ready for submission try to find a Radian Underwriter.

    Rhonda, do you feel like you are walking on quick sand right now?

  7. Cathy, I feel more like I’m playing the game “break the ice” where chunks are following away and you have to jump to better ground quick. As a LO, you have to be nimble and ready for plan b with clients these days. Flagstar did a great job with their pmi memo and that’s who I’ve been using for my lpmi and flex programs.

    I was surprised to see a lender (MortgageIt) pull out of all of those programs instead of just pulling back LTV or increasing credit score minimums.

    How are you feeling these days Cathy? πŸ˜‰

  8. Rhonda,
    I feel like the whole barn is being burned down to chase out a few rats. We should have been policing ourselves sooner so that those bad brokers (and lenders) didn’t ruin it for everyone. Now it seems, there are a lot of people intent on driving us out of business.. to wit

    The Appraisal situation:
    I read the Home Value Protection Program in its entirety and found it interesting that a “small bank” may be excluded from this for hardship reasons… so this isn’t going to be a hardship for a broker?

    I am trying to stay upbeat, creative and positive with my customers but right now I feel like my business is under seige.

  9. Good Ol’ Ben was at a bankers conference today and was implying the same thing…community banks may be excluded from a lot of what’s going on… the big difference between small banks and brokers is that the banks have been more regulated.

    I’ll still stick to my guns and say that anyone who originates a residential mortgage should have the same requirements (licensing) and play by the same rules…if nothing else, for the consumer.

    BTW my sister is a rep for Flagstar (my other sister was a rep for MortgageIT until they laid her off).

  10. Here…here. Glad your sister is with Flagstar. They are a good company to deal with and I think they will survive this crisis just fine.

  11. They are fighting for their financial survival – I mentioned several months ago on this blog that washington mutual would be low teens or below 10 dollars and citigroup is headed into the teens…. tough times right now and we are in the 4th inning. I am a real estate broker and was here when rates were 17 percent. So, am not a homer….. this is going to get very ugly.

  12. I haven’t looked at any reserve numbers, but I’d still guess that whatever they are Citibank’s bigger exposure is really credit cards and other consumer debt. That’s the stuff people used to roll over into their refinances, and credit on cards was granted accordingly. And it’s also the stuff that when things get tough (bankruptcy), people don’t pay. In contrast, people will go to great extremes to make their house payments if they can.

  13. The sad part is as Bernake continues his insane policy of lowering short rates long rates will start creeping up. Bond holders are in negative territory at this point. The ten year at 3.6% with 5% plus inflation plus is insane. If it was not for money flowing from the stock market and other bonds into the treasury market for safety the yield would be higher. This will happen soon enough. I think his policy of killing the dollar will negate any silly program coming out of Washington. The bandaid needs to be ripped off all at once. Death by a thousand cuts is nuts! This is starting to remind me of the Japan scenario and we dont want to go there.

  14. Don-

    What else can the Fed do? All they’re trying to do is loosen up interbank lending, but even that might not be enough and could have inflation implications. The Fed can’t set policy on underwriting and they can’t make regulatory changes. The industry is already seeing changes, but is it enough? Until investors have faith in underwriting we’ll continue to have disruption.

    I was on a conference call will Alan Greenspan yesterday and he voiced what I’ve said over and over again in this forum. This is classic herd mentality. Fear and panic has taken place of logic.

    You can see this phenomenon when you compare spread of corporate defaults vs. bond rates. While these have moved with each other since the 80s, as recently as Aug 2007 the spread has widen to about 600 bps. That means that even though defaults have remained stable, investors are demanding larger than normal compensation for buying bonds. Classic fear and panic!

  15. Greenspan had a huge part in this. Looking the other way….. suggesting arms ect. The cops, ( regulators ) were missing in action while all this crapola was going on. Rates should not be lowered and the banks should provide transparancy ASAP – credit markets will NOT improve until we know what is behind door number three. No pun intended on level 3 assets.

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