Notice to Loan Officers/Brokers

The following comes from a major U.S. mortgage writer. It is typical of what has been going on in the mortgage business over the past few days:

As you are probably aware, the mortgage industry is going through a major disruption. In response to these market conditions and to enable ******* to continue to serve our customers; we have made changes to our loan eligibility, appraisal rates and repricing of loans in the pipeline.

  • Rate exceptions by AE’s will no longer be allowed
  • Only full doc loans allowed
  • No Non OO (Owner Occupied) and second homes
  • Increased disposable income requirements on D/R’s > 50% from $2000 to $3000
  • No refinances of Vacant Properties
  • No refinances of properties listed for sale in the last 3 months
  • Limited ltv’s on homes listed for sale > than 3 mos but less than 6mos for cash out refi’s 
  • Loans in the pipeline will be repriced according to the current rate sheet unless they are in ‘"docs out" status or are Purchase transaction types in "Conditional Approval"
  • All loans in the pipeline that are NOT O/O Full Doc must fund by August 17
  • Appraisals must be less than 90 days old
  • Appraisals must contain 1 comp  sale< 3mos old and 1 current listing. All other comps provided must be < 6mos old

Thank you for your understanding; we realize the impact this will have on you and your customers however in order to continue to stay in business we felt it necessary to make these unfortunate


Now if only this had been sent out, oh, say about 3 years ago . . .

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  1. michael schumacher commented on Aug 7

    “No refinances of Vacant Properties”

    So no financing in most of coastal Florida, California’s Inland empire, and the Sacramento area too, you can add in major portions of Phoenix and then add a large swath of the North east to boot.

    That’s going to really help the overall situation but I keep forgetting that it’s all contained……just ask the Fed later on today as they won’t mention it at all.


  2. UrbanDigs commented on Aug 7

    Appraisals must contain 1 comp sale< 3mos old and 1 current listing. All other comps provided must be < 6mos old.. There goes market value and the concept that a property is worth what a buyer is willing to pay for it! I guess 'making the number work' no longer applies and hard and fast proof must be provided to ensure the property is worth what the buyer thinks its worth and agrees.

  3. KirkH commented on Aug 7

    So that rules out, oh I don’t know, 50% of home loans here in San Diego.

  4. ECONOMISTA NON GRATA commented on Aug 7

    “we felt it necessary to make these unfortunate changes.”

    In summary, having the ability to fog a mirror is no longer our only criteria for lending….

  5. michael schumacher commented on Aug 7

    Based on this:

    “No refinances of properties listed for sale in the last 3 months”

    This is either fake or whoever this is has much larger cash issues than they are leading the client(s) to believe……cash issues as in having NONE. No cash=no funding, etc..


  6. Norman commented on Aug 7

    The problems with these loans were not so much what is in the memo, as important as that is. It was in two misrepresentations that loan comapnies made.

    First, they used as an example of resetting the previous five years interest rate history not telling their customers what an extraordinary low rate period that was.

    Secondly, with below market rate loans they did not explain what negative amortization was, that the difference in mortgage payments that they were paying and what the mortgage interest rate should be is added to their mortgage so at the end of the five years their mortgage would be considerably higher.

    Thirdly, and relating to the first two points, they did not present examples of the payment consequences of potentially higher rates.

  7. Kp commented on Aug 7

    It’s all a game. When money is plentiful, greed is enabled as standards loosen. Trouble is that inflation is always hanging out with plentiful money supplies. So a positive feedback loop between chasing higher returns and increasing inflation ensues. Only those who are lucky enough to snap out it in time and pull out will break even. Everyone else loses.

    If the standards would be bureaucratized, things might be a lot more stable.

  8. Socalcool commented on Aug 7

    It’s interesting that this is all being presented as a temporary increase in funding criteria due to ‘market conditions’. I live in Orange County, and this would mean that 50% of the purchase loans would be unavailable (at least, if not more…). To ‘fix’ this mess, Fanny and Freddie need to become bigger buyers and conforming has to go to 500k on the coasts…

  9. KP commented on Aug 7

    Why can’t PRICES go DOWN instead of the limits being raised?

    It’s pretty generally accepted that they are a tad high no?

  10. DavidB commented on Aug 7

    They best be careful. They might start instilling fiscal prudence into the credit markets. Can’t have that. People might learn it reduces stress and makes their lives a lot more livable. It could become a fad and start spreading to consumers in general and then to businesses. The fed and the banking system would be out of business in no time. Nope, can’t have that.

  11. zero529 commented on Aug 7

    “however in order to continue to stay in business . . .”

    Barry, is this memo firsthand or nth-hand information? The phrasing of that last paragraph just strikes me as not sounding like something a major U.S. mortgage writer would send out.

  12. LAWMAN commented on Aug 7

    zero, check out my link to the brokeroutpost. The memo posted by Barry is verbatim to the memo’s and emails sent out by a number of other lenders to loan officers over the past week.

  13. Bob A commented on Aug 7

    This is NOT fake

  14. Bob A commented on Aug 7

    I believe that language is intended to give loan officers a line to tell their customers who’s loan apps are being poop-canned.

  15. seamus commented on Aug 7


    You’ve identified the great market failure of housing in America. The tax system and the marketing mythology of “the American dream” have convinced many of us to plow almost all our capital and income into our homes. Creating true affordability requires home values to decline, which causes such personal sickness to homeowners that they do irrational things like vote out the ruling government. As a result, governments come up with alternate solutions like “affordable housing,” which is code for designating a magical income bracket to get subsidies. In expensive cities, this helps the bottom 10% while preserving the wealth of the top 20% and forcing the other 70% to move way the hell out of town.

    Of course, yesterday’s WSJ reported that 10%-15% of wannabe buyers who could have gotten a loan in January won’t be able to get a loan in August, and another X% are just renting and waiting for prices to decline further, and another Y% will have a lower mortgage approval level to play with. So unless the government steps in, home values are going down in every market in the country, probably for a couple years. Good.

  16. wonderwood commented on Aug 7

    As someone who would one day like to pay a reasonable price for a house for my family to live in and have a non-bizzaro mortgage, this seems like good news to me. Am I wrong to be chanting ‘we don’t need no water let the muthasucka BURN!’?

  17. bob brandt commented on Aug 7

    Does this spell ‘short XLY” ?

  18. michael schumacher commented on Aug 7

    Thew wrong people will have been burned and the purveyors of it all will become enriched (yet again) by the process that they created, managed (or did’nt manage IMO) and subsequently bailed out from (yet to be seen and how).

    I suspect we will have another clue as to how it will all work out in about 2 hours time….


  19. moom commented on Aug 7

    No loans for “investors”?

  20. Bob A commented on Aug 7

    “Does this spell ‘short XLY” ?”

    or maybe, short ABCDEFG….

  21. sylvia commented on Aug 7

    I have the same question: Barry, are you sure this isn’t fake? If so, how “major” is this mortgage writer?

    This is insane.

  22. Andy commented on Aug 7

    Article online just now that HomeBanc is dumping their entire mortgage business and trying to figure out how to protect the rest of their assets. Not long now for them.

  23. VJ commented on Aug 7

    Press On Regardless:

    NovsStar Mortgage announced that they will be getting back into the business of underwriting SUB-PRIME mortgages through their brokers starting TODAY. The company, however, states it intends to adjust pricing and guidelines for these loans (bend over and spread ’em).

  24. John Thompson commented on Aug 7

    Hey, unless we’re going to endebt the whole country even further and force Fannie and Freddie to give EVERYONE over 23 a NINJA loan to spur the economy for EVERYONE . . .

    Last I checked, this is a free market (heaviliy manipulated) system.
    Let the free market reign this time for sake of fairness.

  25. Bob commented on Aug 7

    This mortgage company is a division of a NYSE company with market cap over $6 billion

  26. michael schumacher commented on Aug 7


    good link…..what I find striking is that here are people that are in the biz and they STILL need a dose of reality. Reading a few of those threads it’s no wonder the situation is as bad as it is. My wife got a note from a lender (her competition) that quotes Run DMC’s Hard Times……… a little late methinks…

    Panic would’nt even begin to describe the attitude over there.


  27. michael schumacher commented on Aug 7


    First franklin???…….That’s my guess

    National City put this out yesterday:

    Effective Monday, August 6th, 2007, National City Home Equity suspended the acceptance of new applications and the issuance of preliminary approvals on previously submitted loan and line applications.

    Read into it what you will….


  28. Groty commented on Aug 7

    VJ: NFI is an originator. Someone has to buy the mortgages from them. I’m pretty sure Wall Street can’t find any more suckers to dump subprime residential mortgage CDOs on.

    So I wonder who the buyer(s) of NFI’s subprime mortgages are? Didn’t FNM and FRE stop buying subprime mortgages months ago?

  29. lauteus commented on Aug 7

    wonderwood, I think the chances to own a decent property at a decent price is coming. In the mean time (I sold a house in AZ in Jan. ’06 and have been renting since), sit tight and watch what happens to the rental prices where you live… According to the memo posted, I think there will be a long line of people looking to rent or burn their property…
    The same mechanism that will (eventually) drop home prices, will, in turn, bring down rent prices due to excess iventory. I think, as a fellow renter, the party is just getting started.

    As far as brokers go, the problem IMO is that the same people we call irresponsible for taking these loans are the type of people that are in the business of giving out those loans. They have no clue as to what the nature of their business is. LAWMAN provided a glimpse into their world… Apparently it takes more than a lecture for most to learn (whatayaknow), I think the bitch slap is already in motion.

  30. Lord commented on Aug 7

    If that is what it takes to stay in business they might as well close up shop today.

  31. Bob A commented on Aug 7

    “So I wonder who the buyer(s) of NFI’s subprime mortgages are? ”

    High wealth individuals who took their Bush tax cuts and put them into hedge funds?

  32. Ken Houghton commented on Aug 7

    Got it in one, Bob A. And the reason they went for the hedge funds was because the “nuclear waste” (technical term) returned above-market returns (i.e., almost enough to compensate for 98% of your money having to do 125% of the work).

    But the nuclear waste hasn’t been selling for months; was there really that much business in the pipeline that it’s only now that the effects are being felt?

    (*sigh* of depression on realising no chance of financing second home; recovers moments later to realise that FL condos in late 2008 will be buyable for low-five-figures)

  33. AD commented on Aug 7

    Patience is always the name of the game in a bust, if you want to buy into that asset. The problem here, however, is how much collateral damage the resulting explosion will do. That’s what I worry about.

    Not that I’m in favor of a bailout; that just makes it even worse later, but this could be a bitter pill.

  34. Winston Munn commented on Aug 7

    Only those who are forced to sell would accept a 20% loss, yet with so many houses on the market no one is willing to pay asking prices, either. It looks like the stage is set for a long period of reduced numbers of resold homes, while new homes will have to cut prices to attract buyers and finance. A kind of slow motion deflation of housing prices over a number of years.

  35. Terry commented on Aug 8

    If you can’t write a refi or a new loan are you not going out of business anyway ?

  36. Bob A commented on Aug 8

    Those who are forced to sell include Homebuilders who are overextended and have to pay the bank. Two new homes in my neighborhood originally priced at $3m now repriced down to $2.5m and still sitting. While subs file liens for unpaid work. And the bank repo’s the builder’s wife’s Escalade. Yet he continues to start new homes.

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