And Then There Were None

Jody Shenn has an interesting article out this morning that shows how the monster banks are cranking up the pressure on independent mortgage brokers.

The article tells us how Wells Fargo and BankAmerica have increased the minimum FICO score for FHA loans they buy wholesale from other lenders.  What’s interesting, I think, is the fact that they haven’t raised the minimum FICO score for lending by their own loan officers.

The difference is dramatic.  In-house lending for FHA guarantee loans carries a 600 FICO minimum at these banks.  With this change, WFC and BAC join JPM, which already had a 640 FICO floor for third party origination.

How does this compare with lending before the crisis?

According to the article, before 2008, a whopping half of FHA’s new loans either had FICO scores below 620 (popular cutoff for “subprime”) or no scores at all.  Today, just 3.8% of FHA loans fall into that category.  In other words, FHA already tightened credit standards substantially.

The “layering” of another 20 FICO points by these three big banks basically cuts 15% off the independents’ volume.  If you happen to be one of those 6.8 million people with a credit score between 620 and 640, you won’t be able to get a loan funded by Wells Fargo unless you’re talking to Wells directly (or Chase, or BankAmerica).

The big get bigger.

hh

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6 Responses to And Then There Were None

  1. Patrick says:

    Did you see where Annaly is going to start providing warehouse lines to small mortgage originators? I think they’re on to something, particularly with repo rates as low as they are right now. Plus it makes for a nice hedge when rates rise…NLY can immediately jack up the rate on the warehouse line instead of waiting for an ARM to reset.

    http://finance.yahoo.com/news/Annaly-Capital-Management-Inc-bw-3145437964.html?x=0&.v=1

    • hhill51 says:

      Saw that…. maybe should have mentioned it.
      .
      The guy who’s running it was on the Street, and has been selling analytic support for the buy side on credit paper. I have to wonder where they’ll book this risk.
      .
      Warehouse pipeline exposure is possibly the most difficult hedging that exists, because borrowers typically apply for several loans, and obviously only close on one. The real issue is when mortgage rates pop upward, because a pipeline hedged to “normal” closing percentages suddenly has twice as many closings as they have hedged. Done properly, the risk should stay with the originator, but in 2008, so many lenders blew up (extremely thin capitalization at pure mortgage banks) that the warehouse lenders ended up owning the risk.

  2. Patrick says:

    Jody’s on top of it, as usual: http://www.bloomberg.com/news/2010-11-17/annaly-s-new-unit-targets-left-out-mortgage-lenders-and-their-securities.html?cmpid=yhoo

    Reaction appears to be positive thus far. Farrell confirmed the strategy behind it – a better way to deploy cash from paydowns than investing in MBS with historically low coupons.

  3. Ray says:

    Did you see MNBC tonight! the foreclosure fraud – amazing!

    It makes total sense, I had a condo that I tried to hand back to the bank… I had no luck… long story but I am out.

    On my mortgage I have been trying to refinance … no luck, cant sell either

    Now we know the bank strategy…… force foreclosure, and the brokers want to force foreclosure…… that is what they want.

    The brokers get a fee, the banks dont care they have the mortgage thro FRA/ gse get 100%, investors – who cares… taxpayers … who cares

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