I just received this memo from Chase:
“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.
The days of the small mom & pop mortgage broker are over. In some ways this is a good thing. I see profit margins increasing quite a bit on deals due to less competition. I also see this getting rid of quite a bit of riff raff as more tier 1 wholesalers cut off pure brokers.
There are a lot of good brokers out there who will get hurt, but at the end of the day, I think this may be good for the industry as a whole.
Wholesalers are learning that you cannot just sign up every tom, dick, and harry broker and expect to have any kind of quality originations.
You almost can’t even say brokers are going to go back to subprime… since subprime doesn’t exist anymore either.
This is the best and worst of times to be in the business. Many of us are making a killing and others are getting killed.
Can someone call Kary over hear so he can wake up and smell the coffee 🙂
Borrowers–if you’re working with a mortgage broker who has your loan with Chase–you need to contact them ASAP!
Escrow companies should review their open files for loans that are brokered to Chase as well and contact the LO.
This email just came across my desk (right after I read it on Twitter from Chik) so LO’s may not be aware of this situation yet.
I can’t count how many Chase payoff’s I’ve ordered over the last three weeks. So, they may feel business will be originated through their branches, but if anyone still feels the sting from the WAMU debacle (including all their former employees) they could do what many have: bye, bye, never to come back.
I am shocked that they are exiting the Wholesale Lending Business but they should at least honor the deals they currently have in their pipeline and just not accept new business!
Tony, I re-read the memo…and it looks like they are honoring locks and not accepting new business.
“Can someone call Kary over hear so he can wake up and smell the coffee”
Yep that’s it. News of this event slipped out early and drove volume down in November and December. That’s what’s driving the market.
Do you even understand what this news means? Chase will still lend money. So people can still borrow through Chase. They just won’t do it through brokers.
Kary,
My opinion is that Chase is doing this to control their business. Some banks are overloaded and unable to underwrite their transactions plus those of brokers.
One difference between correspondents and brokers is that correspondents underwrite (and fund) their own transactions. They use much less of the banks efforts and take on more of the credit risk.
People will continue to receive loans…but it will be fewer people…it’s not that they’ll all go to the bank. Guidelines will get tougher and banks and mortgage companies will cherry pick those who won’t have to go FHA.
Rhonda wrote: “People will continue to receive loans…but it will be fewer people…it’s not that they’ll all go to the bank. Guidelines will get tougher and banks and mortgage companies will cherry pick those who won’t have to go FHA.”
But this is not a tightening of guidelines. This is just the removal of a choice for mortgage brokers. I’m not even certain whether it was typically a good choice, but mortgage brokers will likely pick other options I would assume, and not just say: “There’s a Chase branch two miles away–check them out.”
Obviously though it’s a troubling trend for mortgage brokers. I wonder if it will reverse when refinance business dries up?
Kary, if other banks follow, small mortgage brokers (who are not FHA approved and/or not correspondent) will be toast…they won’t have options.
Kary,
Refinance business drying up? LOL. We still have to get to 1%. Obviously, I’m being extreme, but the refi machine is going full tilt right now. And to boot, Helicopter Ben is suggesting Bailout version 2.0 coming soon. Nutty.
Tim, bite your tongue–HARD! How can you even speak of a 1% interest rate? Arhg!! I have folks who can’t make up their mind over rates in the mid4s.
What’s a madda w/you???
This sentence says it all:
“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”
There are a couple of forces at work that make wholesaling to brokers less attractive. However, I think Chase is doing what most mega banks are doing and that is trying to capture retail market share and nothing more. One of the Harvard MBAs/McKinsey consultants is basically telling them that they don’t need brokers because they have penetration to 70% of the populace with their branches. They are using the perfect storm of the broker being the scape goat of this mess as an excuse to go ahead and go full force into retail again.
This approach sounds good to those who don’t originate mortgages for a living and well versed in “business theory”. However, it ignores the fact that retail banks generally suck at loan origination. They simply aren’t efficient originators by in large. Most of the executives haven’t figured out that high producing brokers/loan officers close tens of millions in loans per year due to RELATIONSHIPS with borrowers. Chase is banking on the fact that people will say “gee, I have my checking with Chase, I might as well get my mortgage.” This approach tends to work well in boom times when there is too much refi business going around, but it has proven a flawed model when business slows and the “phone officers” and schlubs working in bank branches can’t figure out how to make the phone ring with new business.
Russ,
to add to your comment, Chase (and all the big banks) are notorious for going after mortgage broker/correspondent lender originated business. They do not value our client relationships what so ever.
Tim:
One of the things I find interesting is that the government keeps trying to get rates lower, but all the other facets of the industry keep nickel & diming consumers so that the vast majority of people can’t qualify to get the low rates the government wants.
Every week it seems like Fannie comes out with some new risk based price adjuster that basically negates any downward movement in rates. A lot borrowers waiting around for 4.5% here in Chicago are going to get a nasty surprise when the find out Fannie is charging .750 premium just for being in a condo. Just like I have to explain everyday to borrowers that a 720 FICO is no longer a “good credit” score as far as mortgages are concerned…
Russ, I just got off the phone with one of my past clients telling her that her 739 score has a different rate for being one digit lower for the optimum rate.
I remember when anytime a client had a score 700 or higher, you were pleased.
Rhonda, yup… same conversation. What is funny to me is that people think you are lying! I have a hard time believing that people with a 720 have a statistically significant higher chance of going into default than someone with a 740.
I had a client who had a 720 because of a $50 dollar collection from FIVE YEARS AGO. He had a disagreement with his cable provider. In the context of the entire file it was absolutely asinine that Fannie would charge this borrower a “risk based premium”. It was a rate/term refi, 80% LTV, single family. The wife had a 760 score and between the two of them they made about $200k. Plenty of assets. Low DTI.
Here is the idiocy of the mortgage business. I dropped him from the loan and put it in his wife’s name. Because the rest of the file was perfect, I got it LP approved with a 60% DTI and was able to get them a rate .5% lower because of it.
You tell me which way is the riskier loan! Lol…
Russ, I know the current trend is down (as to interest rates), but how long will that last? 6 months, a year, two years?
As to the credit score issue, some day they’ll even figure out that isn’t good for dealing with mortgages.
Russ and Rhonda, I know this isn’t the first bank to do this, but out of curiosity, in the last XX days, approximately what percentage of your business was done through Chase?
Kary, I can still work with Chase, I believe that Russ can too. (Russ will correct me if I’m wrong)…because we’re correspondent lenders. This does not impact me (yet). Chase is one of the lenders I work with.
With rates, we have Fannie Mae’s add to rate which I’m seeing lenders issuing notices that they are adopting this now. Condo owners with less than 25% down will have a higher rate than someone buying a SFD. Doesn’t matter how swell the building is or what their credit score is. It’s a condo–pay 0.75% more of the loan amount in fees to have the same rate as your brother buying a house with the same credit scores, LTV, etc.
Jumbo loans are more risky because if they default, the losses are that much larger. In addition, banks know that the jumbo borrower is more likely to refi at the drop of a hat. When rates dip a little lower, the jumbo borrower can see a greater effect on his/her monthly payment so the loans end up paying off earlier, and the investors would prefer to have that yield a bit longer. Thus, the rates on jumbos are higher and banks can be as picky as they want to be right now.
Banks could care less about our local markets and clearing out the jumbo inventory. They’re trying to save themselves.
It’s the Titanic…it’s sinking….not enough life jackets…..only the retail and correspondents are allowed in the life boats. Brokers must fend for themselves….
Any pure broker not approved to originate FHA loans is a dead man walking…..UNLESS the broker has many other ways of doing business.
This is an ideal time for brokers to transform their business model into something that will survive and thrive in this new market. Pure brokers that cannot become FHA approved can become the new source for hard/private money. Some will become specialists in other areas such as rural development loans or VA loans. Some will decide to become a financial planner and tap other sources of revenue. Brokers can hook up with a strong FHA approved correspondent and ride out the storm.
I also believe we’re seeing some LOs try to make the jump over to the retail sector to ride out the storm. Consumer finance companies, credit unions, retail banks. Some will be able to withstand the culture shock of the switch, some won’t.
The strong will survive and adapt. Interesting analogy in the new issue of National Geographic about a guy named Wallace who discovered adaptation characteristics in animals and sent his findings to Darwin, who published them.
The brokers who adapt will survive and breed and become stronger. 😉
I’m fairly certain I had to pay a higher rate for a condo loan back in 78. Back then condos were not as common around here.
Condos should be charged higher rates. The condo market is more volatile, and the condition of the property is intertwined with the financial condition of all the other owners. I wrote a piece a few months ago on the declining condition of some condo projects, called Don’t Let Your Condo Complex Turn Into a Dump.
http://blog.seattlepi.nwsource.com/realestate/archives/152734.asp
Lenders need to worry about that too–not just owners.
Kary;
I agree that condos can be more volatile. However, the problem I have with these fees is that they are mandatory so they do not take into account the context of the file at hand. Refer to my example above where a clearly riskier loan gets a lower rate based purely on a fee adjuster, not if they loan is truly riskier.
Jillayne;
I think the banks are making the market worse. Classic chicken or egg scenario. Banks will say the markets are declining so they don’t want to lend, but I say the market is declining because banks won’t lend.
This whole mess started because the secondary market figured out there were a segment of loans which were garbage and promptly stopped buying. When the secondary stops buying, the banks stop lending. It is that simple. Again, banks generally do not make loans because they make sense, they make loans because their is a market for them.
The problem is that the entire housing market and prices are based upon the availability of credit. Once the source of credit dries up, housing has no where to go but down since the pool of available borrowers shrinks dramatically. The banks are basically shooting themselves in the head trying to cure a headache. The cure is worse than the disease.
Keep in mind that the foreclosure rate is still only about 2% of all mortgages across the board and a large number of the foreclosure increase was due to FRAUD and SPECULATION.
Instead of focusing on preventing the small number of loans that went bad, they basically cut off credit to the other 98% of people. It is a lot easier to just shut everything down instead of actually THINKING and UNDERWRITING individual mortgages. In addition, much of the decisions are based on the value of the market value of the loans, not if they are actually performing. This is why luxury mortgage lenders to rich folks like Thornburg who have like a .1% default rate have to charge 10% rates now and are on the brink of bankruptcy even though the loans perform exponentially better than ANYTHING in Fannie & Freddie’s portfolio.
Rhonda:
We do quite a bit of business with Chase as a correspondent. There is no loyalty with mortgage banks though. Instead of being a way for mortgage banks to make additional income through makign their loans available to third parties, the wholesale industry turned out to be their biggest competitor. I think they are trying to put that genie back in the bottle.
Russ, I agree. Banks are trying to do away with mortgage brokers. They were too successful capturing the market and banks believe they’ll retain the client.
I’m wondering how long they’ll allow correspondent lenders to exist?
Banks folding up their wholesale lending division is a natural part of the cycle.
This shouldn’t be thought of as something underhanded. Banks will always do this when it serves their interests and then open the doors up again….when it serves their interests.
Russ, banks definitely are lending. They’re just lending to people who are a very low credit risk. We should all expect lending guidelines to get tighter and for credit score requirements to go UP for people who want the best rates.
Default rates may be low historically, but subprime default rates are much higher than that.
The banks didn’t set aside enough money in loss reserves to cover the bump up in defaults on the subprime, alt-a, and prime arms.
Banks have to make loans to survive, BUT they cannot afford to make loans that will default, thus the appetite ONLY for borrowers with great-to-excellent credit.
Aren’t correspondents considered part of the wholesale program too?
Cathy, it seems that Chase has different correspondent relationships. It looks like they are terminating those who sell loans in bulk:
“Additionally, we are ceasing the purchase of bulk servicing in the
Correspondent business.”
We don’t sell our loans in bulk.
I find it interesting that brokers are blaming lenders for closing wholesale.
As a whole group, the quality of loans originated at the broker level is below that originated at the retail level. This is a widely known industry fact, whether or not an individual broker has a spotless, squeaky clean compliance record.
When we begin rebuilding someday, the broker industry would be wise to raise standards such as barriers to entry, minimum levels of compliance, and minimum capital requirements even higher than they are now.
The broker industry is being judged on its lowest form of life by the banks, not by the best brokers in the U.S.
I arrived to meet a new compliance person in a city north of where I sit today. It became very clear within 5 minutes that the (married) broker’s new compliance person was his lover and she knew absolutely nothing about mortgage lending. Three months ago, another new hire with zero compliance experience was taking over the reigns at a broker shop.
This is insane. When an industry treats compliance as a joke or at best, an afterthought, it’s no wonder the banks and lenders are cutting off brokers.
Brokers: stop whining and look within your own industry….especially if your own company is stellar.
Jillayne, I don’t think anyone is whining here.
Okay, I can restate the last sentence: Brokers, stop blaming the lenders and look within your own industry.
Jillayne, I know you’ve been on the banking side of the industry…I don’t know if you’ve ever been in a mortgage broker or correspondent lender’s shoes…especially over the past 5 years.
I agree there’s a time to move forward and I think brokers are trying to do that…but there is a struggle with the banks–fact. It’s happening and unless you’re actually in the trenches as a broker/lender, you probably wouldn’t know it.
I learned last night that our local Chase rep was part of the correspondent cut back (25% of staff I believe). We do have a new rep.
I have a question. A friend of mine owns a “co-op” unit in Seattle. They tell me there is only one lender (in the whole world?) who will finance a mortgage/debt on such a property. Is this true? Is there only one such lender out there? Who knows? How can I learn more?
Blair:
99% of the “co-ops” are in New York. The other .9% are in Chicago. Very very few lenders offer financing on co-ops and the ones that do usually limit the financing to New York.
There are probably a few local banks that finance them in Seattle. Basically she needs to ask her neighbors what banks hold their mortgages.
The universe of co-op financing outside of NY is very very small. You don’t get many choices.
There are enough coops around here that I amended my distressed property addendum to specifically mention them.
I’d suggest talking to the agents listing other units in the same building about the financing choices. I was looking in a coop building a few months ago, and most the listings mentioned the terms on the financing–so they had looked into it.
Housing wire has a good article on Chase this morning and their
new plans to offer more loan modifications to borrowers:
http://www.housingwire.com/2009/01/16/chase-steps-up-mod-efforts-again/
Thanks, Russ and Kary.
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I’m not sure what percentage of business Chase does in our immediate area other than the WaMu business it picked up, but I’ve never had a client with a Chase loan in over 5 years although a refi just came up for someone I worked with this past week. No purchases though.
Rhonda, I agree with you that brokers are getting axed more and more by the loss of lending sources and it is making it harder for them to compete. There are times where it works out and I appreciate my broker contacts that have relationships with banks outside of the big ones who can track down specialty products when my clients need them and they are available.
Reba,
Brokers and correspondent lenders help keep rates competitive. If we only have a couple big banks left standing when it’s all said and done, there were will be little incentive for lower rates.
I currently have 4 loans at Chase wholesale that have no hope of closing by their rate expiration date due to Chase’s expanding turn times and employees leaving due to the department closure. I have run into block walls trying to get Chase to extend the rates at their cost or even meeting me in the middle. Is anyone having any luck getting Chase to pay for extensions?
Cindy, how long of a lock did you originally do with Chase? When did you submit your files?
I know Chase (and many lenders) have jacked up the cost of extensions…and lenders will consider based on current pricing and lock-fall out ratios between broker/lender and wholesale/bank.
Hi Rhonda…
I did 45 day locks mid December all the files were delivered in a week. Underwriting turn times were quoted back then at 7-9 days. Chase changed the rules midstream and they don’t go by by AU engines and want 2 paychecks/2 months bank statement/2 yrs W2s). So, my loans went in to underwriting 1/7 Even now, they are currently working on refinances received 12/26! Even if you sent in a perfect package (and I don’t think that is possible for Chase).
What a pain!
Any suggestions?
Cindy, OUCH. I feel your pain… it’s been so long since I’ve brokered a file…we close most everything in our credit line (correspondent) and sell the loan after closing.
You did everything right with having a 45 day lock and quickly submitting your files.
What does your Chase rep say? (Do you still even have a Chase rep?)
Hi Rhonda…
No, Chase let all of their AE’s go Jan 21st. Employees are leaving the wholesale department like rats on a sinking ship.
Cindy
Cindy, Do you have to keep the loans with Chase?
I can’t touch the pricing I locked in at.
How expensive are the extensions?
.375% for 15 days and .50% for 30 days extensions. At the rate they are going, I don’t think 30 days is enough!
Cindy, how perfect are your borrowers? Do you trust that Chase will come through?
Hi Rhonda…
All of my clients are golden. Low ltv’s, 750-800 credit scores, good ratios.
At this point, I don’t think they will deliver. I was told this morning by William King at Chase that since they are exiting wholesale, Chase basically does not care that they are responsible for rate locks expiring and they are not extending rates for free.
Just amazing!
Cindy, I’m so sorry…this market is amazing. Hopefully rates will come down low enough for you to find a new lender for your clients. Have you told them what’s going on?
I keep seeing wrong reporting about Chase… I just saw this from Realtor(R) Magazine:
“Some banks, including JPMorgan Chase have stopped using outside brokers and only accept applications submitted at their own branches.”
They are still working with some mortgage brokers who are correspondents. Our company still works with Chase.
I think misreporting in this market (and any) is irresponsible and dangerous. I’ve sent Realtor(r) Magazine an email and I hope they will correct this.
Chase hummm lets see ……….Well I don’t miss them ! When the refi boom is over they will be back begging for business from the brokers . Brokers are the best place to secure a mortgage. It is April 2 now , my small office has closed over 14 million since they pulled out and we are selling to other companies .Now multiply that times the number of brokers out there, as usual Chase will be just like WAMU losers. We have plenty of smart agressive wholesale outlets to sell good paper to. We have been in business 20 years , a member of the state BBB and plan to be around another 20 + years . Our loans are over 720 mid , average loan size 250,000 A A A + paper . Thank you Chase for pulling out of the broker end first , so we will not crash with you down the road. the company you run is very much like Chrysler , no business plan .