How the mighty players have fallen

Published in The Daily Record, May 7

If you really want to see how the mortgage landscape has changed in the last four years, all one has to do is take a look at those companies that were big time players in the “Alt-A” business in 2006 and see where they are now.

Alt-A mortgage paper basically refers to those reduced documentation programs – stated income, No Ratio and No Doc — that were running on steroids just a few short years ago. Just a retro glance at those companies shows how much money in loan originations was fueling a fire that eventually would incinerate most of those firms.

According to a list compiled by Mortgage Daily.com of the top 20 companies doing Alt-A business, leading the way was Countrywide, which originated $88.5 billion in Alt-A, subprime and home equity lines in 2006. In the first quarter alone in 2006, it originated $20.2 billion. Then you have such other players as IndyMac Bank, Option One, New Century, Novastar, Washington Mutual, Wachovia, National City – all doing billions of dollars of business in the Alt-A field.

Fast forward four years and all of those companies have vanished or have been absorbed into other firms. Now take a look at who the leaders are in the Alt-A, home equity, subprime list and it’s a little sparse.

In the first quarter 2010, only two banks – Bank of America and JP Morgan Chase – reported their originations, which were primarily home equity lines. Bank of America originated $2 billion and JP Morgan Chase did $300 million. The others on the list, but who had not yet reported, were Residential Capital, U.S. Bank Home Mortgage and Wells Fargo. And that’s the list.

But just think — $2 billion from Bank of America. This is from a bank whose footprint is practically nationwide and who not only absorbed Countrywide and its servicing portfolio, but also took in Merrill Lynch brokerage as well.

This just reconfirms how tight lending remains, and how it has narrowed the swatch of buyers who four years ago could consider buying a home, but who today are renters.

Updates to FHA financing

Last week the House Financial Services Committee approved raising the annual FHA mortgage premium that borrowers using the government-insured loans pay. This action was expected since FHA announced late last year that it was raising its upfront mortgage insurance premium from 1.75 percent of the amount borrowed to 2.25 percent.

The annual premium currently is .55 percent of the loan amount and is collected proportionately every month. With the approved raising of the annual premium – which has yet to be determined, but is expected to rise to 1.50 percent – FHA will scale back the amount it charges on the upfront premium.

Bottom line: the overall loan amount will decrease with the lower upfront premium that is tacked onto the base loan amount, but an FHA borrower’s monthly payment will rise.

The committee, however, did defeat a proposal made by New Jersey Rep. Scott Garrett, which would have increased the minimum down payment for FHA guaranteed loans from 3.5 percent to 5 percent.  It also would have prohibited sellers from giving closing cost help, which for the meantime can be as much as 6 percent of the sales price. FHA already plans to scale back the maximum seller concession to 3 percent sometime this summer.

Tighter underwriting ahead

Fannie Mae continues to tighten up its guidelines, this time it takes aim at borrowers who have just started new jobs, but who will go to settlement before they get their first paycheck.

Previously, Fannie Mae would allow a borrower to go to settlement as long as they had 30 days on the job before the first mortgage payment would be due. That meant if you started May 1 on your new job and submitted all the proper documentation from your employer about your salary, you could close on your loan May 30 because you would have 30 days of employment under your belt by the time the first payment – July 1 – would take place.

No so any more.

Now Fannie Mae will require a full 30 days on the job with paystubs to be submitted before a borrower can go to settlement. So for that attorney transferring to Baltimore from New York who finds his dream home and wants to buy now, the Realtor in charge better make sure that the settlement date will come after that person is in place on the new job for at least 30 days prior to closing.

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