National Mortgage News Managing Editor Bonnie Sinnock reported that, "What many said was the severest liquidity crunch they remember seeing during their time in the industry largely closed the non-agency American mortgage market last week. Subprime and alternative-A credit production had come to a grinding halt, and the prime jumbo mortgage market had slowed to a trickle."
Does that mean nobody got a mortgage? Of course not, it's just that prime and government loans once again became the place to be. As investors clamored to get their footing and decide where they want to be, pricing changes hit the market at a dizzying pace nowadays. So, how do lenders keep up? Technology.
"This situation has elevated to a global scale," said Ed Wilburn, managing director at Capital Mortgage. "Investors were buying MBS backed by subprime loans, which are having trouble now. The pendulum swung on the side of loose lending standards because Wall Street was hungry for MBS. Greed is the culprit. Now we're paying and there is no MBS market. So, lenders are pulling back their standards to get Wall Street back into MBS.
"It's going to be an interesting few months. We may see another revamping of guidelines. Nobody knows where the pricing is going to be when the secondary market comes back. As far as how this impacts midtier lenders like us, all our loans are locked in through our product and pricing engine.
"In order for us to have our loan officers keep confidence in the system, the product and pricing engine has to be accurate," noted Mr. Wilburn. "With all the changes that came out we feared that it would halt our operation all together. From a liquidity standpoint, the bad news has now trickled down to the midtier. Already our warehouse bank said we can't fund anything outside of the agency products, which cuts out 60% of the loans done here. They eventually became confident, but if we weren't able to lock efficiently we'd be getting buybacks and lenders like us can't handle many buybacks."
Technology to the rescue. "There is no market for anything other then agency paper," pointed out Larry Huff, co-CEO of Optimal Blue. "The CEO of IndyMac said if you can't hold nonconforming paper on your balance sheet you'll be out of business. Unless you have a lot of capital and staying power there is no market.
"Since the liquidity has dried up, investors are going back to prime. We had a huge investor eliminate all their subprime and come out with prime and alt-a stuff. That's drastic, but even Countrywide is rethinking. Every nonconforming product is being changed. We get these guideline changes, 180 within the past week alone, and we get those guidelines in, test them and roll them out within 15 minutes.
"For example, Deutsche dropped pricing by 300 bps to price themselves out of the market and changed twice again in the past week to get back. This is the most incredible thing that I've ever seen," reported Mr. Huff. "When you're getting between 40 to 50 changes every morning, it's a problem. You have to react quickly. We re-architected our system to handle the volume. We've been able to respond within 15 minutes."
So, what does this mean for the future? "We have to pull together, stand shoulder to shoulder and weather the storm," answered Mr. Huff. "There will be casualties. We've heard of lenders going out of business with just three days notice from the investor. It's about communication. It's about being timely and moving fast in a dynamic market."
Just another example of how even in the darkest times, technology is there to move things along and keep smart lenders going. Makes you wonder why it is this industry fears change and the e-mortgage so much, right?PLEASE LEAVE YOUR COMMENTS BELOW. JOIN THE CONVERSATION. ALSO, BE SURE TO VISIT TECH NICHES REGULARLY AS IT WILL BE UPDATED EVERY TUESDAY WITH A NEW ENTRY. LET'S TALK ABOUT WHAT REALLY MATTERS PERTAINING TO MORTGAGE TECHNOLOGY.
