THIS JUST IN: Yet another major wholesale lender is pulling the plug on using loan brokers to originate home equity lines of credit. But this wholesaler, at least, will continue to table fund first liens. The full story will be in the Monday edition of National Mortgage News. Don't subscribe? Call: (800) 221-1809...
The mainstream media was going ga-ga over the landmark housing/mortgage bill the president signed on Wednesday. Most of the talking heads focused on the phrase "bailout" but didn't tell the general public that the $300 billion in new FHA money (for those needing to refi) is not an on-balance-sheet item for the Federal government. The FHA's single-family program turns a profit most years. The biggest news for loan brokers and retail loan officers is this: there will be a national licensing system and registry that becomes a reality next August. Brokers and LOs had better start hitting the books. This means testing. See Brian Collins' story in Monday's NMN for the full details...
It was a year ago this past week that Bear Stearns threw its two subprime hedge funds into bankruptcy. This set off a chain reaction in the capital markets. The inside story of Bear's downfall is in the new book mentioned below. But there's more to the story then just Bear. It's also the story of the "laptop grunts" who worked for The Clayton Group and The Bohan Group, which were "contract underwriters" for Bear, Merrill Lynch, Lehman Brothers and other investment banking firms. Here's an excerpt from the book "Chain of Blame, How Wall Street Caused the Mortgage and Credit Crisis":Each investment banker using Clayton or Bohan would give the contract underwriter a set of guidelines, contained in an Excel spreadsheet, to measure the loans against. "There are 600 pages in a guidebook," noted [Carl] Chamberlain. "You don't have time to do it over."
A rating of a one or two meant the loan was good, and the Street firm would buy the mortgage. A three meant fail, with a recommendation not to buy. But sometimes Chamberlain's supervisor on the job would overrule his three ratings. "They would make it a one or delete your comments," he said. "There were compensating factors or CFs. If it does not meet [the investor's loan] guidelines you can say it's a two because it has CFs." When a reporter from National Mortgage News asked Chamberlain what a compensating factor might be, he laughed. In one case, a CF was granted because the borrower had been on the job 20 years and was applying for a loan where the debt-to-income ratio was too high. But his favorite CF was one where his supervisor granted an exception because the house had what he called "curb appeal." Chamberlain chuckled. "Curb appeal. Funny, a house doesn't pay the mortgage; the borrower does. So I never quite understood how this was reason enough to push the loan through."
Mortgages that received ratings of one or two from Clayton's grunts were bought without question. The idea, according to several contract underwriters interviewed by reporters [Paul] Muolo and [Matthew] Padilla, was to pass as many loans as possible. Over at Bohan, a top executive there told Padilla that some of the due diligence firm's Wall Street clients had a "history of overturning a lot our 'red Xs.'" A red X meant loan rejected, that the Street firm shouldn't buy it. "You need to keep volumes up," said the executive. "Originators were going public. There were large investors. Rates started rising. How do you keep volumes up? You get creative." (For more, visit http://www.chainofblame.com)What BusinessWeek had to say about the book:
LAS VEGAS HOUSING UPDATE: "The Las Vegas housing market is really down. I think housing values are down 26%. I am so glad I paid off my mortgage, and we have no plans to sell. Everything has gone up since gas prices rose. No matter what Bush says, it is recession." - Eclid Villarosa. If you have an update on your regional housing/mortgage market and would like to share them drop me an e-mail at
In case you missed it: Merrill Lynch is selling $30 billion in subprime-backed bonds for just 22 cents on the dollar. But the investor Lone Star Funds isn't paying cash. Merrill is extending them a note. It will be interesting to see what Lone Star's return on the investment turns out to be...
More bad news for the foreclosure market: On Thursday the Labor Department reported that the number of people seeking jobless benefits jumped to the highest level in five years...
MORTGAGE PEOPLE: Northfield Bank has named Eileen Yeagle assistant vice president and mortgage servicing manager. The bank also named Sebastian Gallitto assistant VP and commercial lending officer. Wachovia Corp. said its chief financial officer Thomas Wurtz will step down after a successor is named. Mr. Wurtz is the latest purge in the new Robert Steel era at the struggling bank.
DATA NOTICE #1: Need a list of wholesalers that have recently departed the sector? Visit
DATA NOTICE # 2: With the mortgage industry in the throes of a historical correction you need up-to-date data on which firms are left standing. You need hard numbers on their servicing and production volumes, including executive names and telephone numbers. All of this is contained in the brand new Mortgage Industry Directory and the web version of the production, the eMID. The book and e-book provide 1Q 2008 information plus full-year 2007 stats. For more information, e-mail
