Having an underwriter to talk to is the single most important wholesale lender attribute, according to a recent survey of mortgage brokers. The report noted this year's subprime fiasco has resulted in the tightening of prime guidelines.
The availability of high loan-to-value mortgages appears to be rapidly eroding in 2007 -- even in the prime market, according to A Look at the Prime Market after the Subprime Meltdown from Campbell Communications. The annual survey of 2,800 brokers was based on responses to over 100 questions related to this year's mortgage lending environment and the broker-lender relationship.
Maximum LTVs and combined LTVs have seen the most tightening out of 32 prime lending guidelines reviewed, according to the report. That was also the case for subprime loans, with the rated magnitude of the tightening about 40% higher.
"To reduce risk, lenders can tighten guidelines, drop programs, or drop brokers from approved status," said Tom Popik, the designer of the survey, in an announcement. "Most major prime lenders are opting to first tighten guidelines -- but this causes more work underwriting each loan, which in turn causes increases in underwriting turn times. Broker frustration with slow underwriting is building, even with prime products."
"Underwriting turn times" had the largest satisfaction gap amongst brokers, and "Grants underwriting exceptions when needed" had the second largest gap, the survey revealed.
All 32 surveyed areas have tightened for both prime and subprime loans although twice as much for subprime than for prime. Tightened guidelines consistently rated in the top half were those related to assets, including PITI reserves at No. 5, and down payment, asset documentation, seasoning of assets, and cash-to-close filling several spots thereafter through No. 12.
The second most-used method by wholesalers to manage risk was to drop some programs, and less frequently, drop brokers. Exceptions to this were Bank of America and Washington Mutual, which respondents indicated were the most aggressive in dropping higher-risk brokers. Meanwhile, CitiMortgage and Countrywide were cited as lenders whose principal focus was tightening guidelines on individual loans.
"When lenders drop programs to manage risk, they tend to drop high LTV programs," Popik said. "However, that doesn't mean that consumer demand for these products has decreased. Another alternative for investors -- instead of dropping programs outright -- would be to increase rates."
The two prime loan products where supply has dried up the most are 80/20 combo, or piggyback mortgages, and high LTV loans with private mortgage insurance, products that were readily available over the past several years due to rapidly rising home prices.
Other categories in which demand exceeded supply were 30-year fixed rate, interest-only fixed rate, prime jumbo, FHA, and 40-year fixed or ARM. Two of nine categories indicating investor supply exceeded demand were hybrid ARMs and payment option ARMs.
Most brokers indicated that while they would prefer prime lenders to have a broad range of programs, having subprime programs is not critical, Campbell reported.
The second most important wholesale lender attribute, according to brokers surveyed, was having an underwriter accessible to help solve problems.
And the most important consideration in selecting a wholesaler was having a knowledgeable account executive, the report said. The AE doesn't necessarily need to be local, though, as that factor ranked only 15th out of 22.