What Does the Credit Crunch Really Mean?
Regular readers may have noticed I haven’t posted here for a while. Besides the short week due to the holiday, I’ve been very busy at work getting loans closed. The effects of the credit crunch are really hitting home.
The underwriters in the office are making sure every “i” is dotted and every “t” crossed. This is taking files longer to close and causing borrowers to produce additional documentation. The end result for was a very stressful week for me and three of my borrowers. By Thursday I got one of three files closed that should have been finished on Monday. Yesterday I got another one closed.
Besides the particulars of each individual file, the biggest questions lingering for underwriters are those affecting credit and income. Borrowers with any past credit problems
are being highly scrutinized. Further, those with less than two years of job history are also getting the magnifying glass applied to them. I managed to get these deals done, but if your loan officer or mortgage broker doesn’t have the right experience, they may not get your deal done. This is another example of where choosing a lender involves more than just the rate.
The nation’s biggest financiers are running scared and consumers are paying the price. Consider yesterday’s news that one of the country’s largest Alt-A lenders, IndyMac, has gone on life support. They’re not completely done, but the outlook is grim.
As a result of the above, we have made the difficult decision, effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel.
No new loans. Is this good or bad for consumers? I spoke to a real estate agent in California yesterday evening who pointed out where IndyMac was going to refocus their business. I had seen an unsubstantiated rumor on Calculated Risk the night before, but didn’t know exactly how bad it would be.
In closing our forward mortgage business, we will refocus our lending efforts on supporting and building within regulatory constraints Financial Freedom, our reverse mortgage unit (FHA production only), and on continuing the retention activities associated with our servicing portfolio. Combined, we currently expect these units to produce roughly $5 billion to $10 billion per year of new FHA/GSE loans. Thus, our core business model will include (1) Financial Freedom, one of the largest reverse mortgage lenders in the Country; (2) a top ten mortgage loan servicing operation, with a solid retention production unit; and (3) a Southern California retail bank branch network, including 33 branches and roughly $18 billion in deposits, of which over 96% is fully covered by FDIC insurance.
My take on this decision follows -
Originating standard mortgages is so risky, IndyMac no longer can do it.
The company is making money on the fee heavy reverse mortgages.
The company is making money servicing loans.
The company is making money being a bank.
Hmmmmm.