Post Update: The greedy intellectual property lawyers from ESPN took down the link to the Jake Brown X-Games face plant on You Tube. You really have to see it to believe it and I think it really illustrates how far the market has fallen. Go to ESPN.com and search for Jake Brown under videos; I am sure you will find it. All I have to say is this kid definitely went to church the next day.
The mortgage market just plunged back to earth on Friday. It was absolutely brutal. Bankers started cutting off Alt-A credit like it was a limb with gangreen. Alt-A loans are mortgages that can generally be defined as creative financing for folks with good credit (stated income, high loan-to-value, investment properties, condotels, large loan amounts, etc). I must have gotten 20 emails yesterday from wholesale mortgage lenders who were in the middle of changing guidelines or cutting off programs effective immediately.
Much of this was spurred by the collapse of American Home Mortgage which basically showed that the sub-prime problems are not as “contained.” Hundreds of millions, if not billions of dollars of mortgage loans went unfunded over the past few days. Plenty of consumers are probably still sitting at the closing table asking themselves WTF as several major lenders just went belly up.
If you are in the process of buying a home, now is not the time to be screwing around with your home financing worrying about an .125% on the rate and who is quoting $50 bucks fewer in closing costs. It is now more important than ever to make sure that you are working with established mortgage professionals who have a multitude of options to ensure that your deal gets to the closing table.
If you are purchasing a home and one of the following is true, definitely make sure you check in with your loan officer to make sure you actually still have a mortgage that can close:
- 80/20 or 100% Financing
- Mediocre Credit Scores (Less than 680)
- Stated Income, Stated Asset or No Ratio
- Jumbo Loans
- Investment Properties
- Any kind of loan with unusual circumstances
Finally, get confirmation of your rate locks and expiration dates. The rates on these products have gone through the roof and if you weren’t locked in you are screwed with a capital F.
Jake Brown, the skater in the video, actually walked away from this face plant with just a few bruises and no broken bones. A miracle given that he basically fell nearly fifty feet which is the equilvalent of jumping off a five story building. Just like Jake Brown, the mortgage market will bounce back so don’t panic but we do have to work through the pain.
My god that fall blew the shoes right off him! I was out of town yesterday and heard about the skateboarder’s fall on the radio, but didn’t see it until now.
Do you really think the market’s falling like that?
Yesterday was the correction that the market knew was coming. We just went through several years of unbelievably stupid lending practices and yesterday was the rubberband snapping back in place. There will definitely be more changes to come. Unfortunately, I do think a lot of legitimate borrowers are going to see their lending options eliminated because of the stupidity of a few speculators and mortgage lenders.
The tide is shifting towards the highest quality loans. However, I do think we will see some of the more riskier loan products coming back as I think there is too much demand for them. However, underwriting won’t be so lax.
I hear you on the email box inundated with “we no longer…” emails from lenders the last few days.
My concern, Russ, is that even with all that the remaining lenders are doing (and have been doing for the past few months in all fairness) to tighten up standards to produce better performing loan portfolios, if investors don’t want to buy ANY mortgage securities, then it doesn’t really matter how good the loans are. Portfolio lenders and Fannie/Freddie/VA/FHA products cannot hold the industry up on their own. Investors need to pull their heads out of their bums and realize a couple hedge funds having trouble doesn’t mean that mortgages are a bad investment overall. Loan quality is improving, all the lenders have now implimented the inter-agency standards on sub-prime, and the overall qualifying and u/w standards have been tightening. Good loans are funding these days, and they deserve to be given a chance by the investment community before its fear makes the carnage immeasurably worse.
Tryone:
I agree with you. I think we have an overreaction right now and unfortunately, many good borrowers are paying for it. There is no reason a jumbo 30 year fixed mortgage should be approaching 8% now when EVERYTHING else about the borrowers would put them in a solidly conforming loan product except for the fact they need a loan larger than $417,000.
Wall Street will come to their senses and good products will be offered after everyone takes a breather.