Still Some Subprime

“We have dramatically reduced our Alt-A loans,” Tom Kelly, a spokesman for Chase Mortgage, told MortgageDaily.com. “Stated income, for example, is gone. But we’re still originating other kinds of Alt-A.”

And credit standards for subprime loans also have “gotten tighter,” he said, although he declined to discuss FICO scores and LTVs and their relationships except to say, “The lower the FICO the more down payment we’re looking for,” adding, “As a lender you want the borrower to have some skin in the game so there’ll do all they can to pay.”

With a full quarter lag in loan sales activity to the secondary market, Chase has been able to sell “virtually all” of its subprime loans, Kelly said.

“The issue in the last couple of months,” he added, “is has there even been any secondary market [for subprime loans]. Often the answer is ‘no’.”

Irving, Texas-based CitiMortgage, however, still does stated income with verified assets and stated income with stated assets Alt-A loans as well as continuing to offer subprime loans, spokesman Mark C. Rogers told MortgageDaily.com. He declined to provide data on credit score and LTV requirements for both Alt-A and subprime loans.

And Scottsdale, Ariz.-based Bear Stearns Residential Mortgage Corp. offers a variety of Alt-A loans for LTVs as high as 95 percent and credit scores as low as 640 for primary residences, said spokeswoman Renu Aldrich. Bear Stearns also offers a variety of Alt-A loans for second homes and residential investment properties, but for lower LTVs and for borrowers with scores in the 640 to 700 range.

Bear Stearns’ Encore Credit division, which is in the process of being merged into the parent, offers full-doc subprime loans for up to 85 percent LTV with FICO scores as low as 500, under some conditions, according to Aldrich and Encore’s Web site. For stated-income loans maximum LTV is 70 percent. But, with six months of personal bank statements, the interest rate for this stated-income program will be reduced by 50 basis points.

Brea, Cal.-based CJ Mortgage, which specializes in non conventional loans, stopped doing subprime loans in mid-June and began tightening Alt-A guidelines in mid-July, Christian Trausch, vice president, wholesale lending, and a co-owner, told MortgageDaily.com.

“Our company used to do everything down to subprime lending, down to 500 credit scores. But we’re no longer able to do the subprime in the current market conditions,” he said, explaining that his company will not originate a loan if it does not have a secondary market commitment for it.

“And on the Alt-A side, we’re getting done most of what we were getting done in the past but the requirements are a little stricter,” he added. “If you’re going stated income, we’re a little stricter on that than if you’re proving your income. We want more self-employed people as opposed to stated wage earners.”

Most Alt-A borrowers, Trausch explained, now have to have more reserves — about six months of mortgage payments for stated income borrowers — in the bank. And to get the higher LTVs in its Alt-A products, borrowers are going to need slightly higher credit scores than they needed in the past.

Since late September, CJ Mortgage’s Alt-A lending has not encountered any problems and Trausch said he does not expect any liquidity problems in the future. As for subprime, he said he does not expect CJ Mortgage to resume subprime lending until next year, perhaps not until late 2008, and then with most of its new subprime products full doc loans with larger down payments required.

Over the summer, Delta Funding “constrained or restricted” some of its subprime programs, Drew Biondo, director of corporate communications, explained to MortgageDaily.com.

“However, we’re starting to open up the spigots again as the markets improve, and we see where they’re going,” he said. “But it’s a long and slow process.”

After raising interest rates during the summer, Woodbury, N. Y.-based Delta Funding, which specializes in nonconforming loans, lowered rates by 25 basis points on Oct. 15, he pointed out.

On full documentation loans, Delta will go as low as 525 on FICO scores, though Biondo declined to say what the maximum LTV is on such loans.

Delta Funding, like Chase, works with brokers, maintaining a wholesale as well as a retail operation, he said.

Its retail-only sister company, Fidelity Mortgage offers loan products that are “pretty much the same” as Delta’s, but is now offering FHA products, Biondo said. “We have not brought that over to the broker side yet,” he pointed out.

At Minneapolis-based Residential Capital LLC, spokeswoman Gina Proia told MortgageDaily.com, “There obviously have been some changes in our underwriting criteria and there have been some changes in the amount of exposure of some of those products that we have. And we will continue to modify our products.”

She declined to discuss minimum FICO scores and maximum LTVs for those products.

Irvine, Cal.-based Option One Mortgage continues to offer nonprime and Alt-A loan products but also now offers what it terms its “Platinum product,” which it says fills “the gap between traditional nonprime and Alt-A.”

Spokeswoman Christine Sullivan said that neither she nor other officials could discuss Option One’s products with MortgageDaily.com because the company has been offered for sale by parent H&R Block. However, underwriting guidelines for the Platinum product show that it is a full doc loan for borrowers with minimum credit scores of 620 and maximum LTVs of 90 percent. There must have been no foreclosures in the previous three years and 24-month seasoning is required for dismissed or discharged bankruptcies. A recent rate sheet showed that fixed rates varied from 8.00 percent to 9.75 percent depending on credit score and LTV.

Other programs at Option One, which faces the possibility shutting down all but its servicing operation, will go down as low as 540 FICOs but with maximum LTV at 80 percent.

TLP Funding of Calabasas, Cal., which offers both nonconforming and conforming loans, is once again offering its Platinum subprime products, which will go down as low as 540 FICO for full doc loans, but with maximum LTV of 80 percent. LTVs can go to 85 percent for borrowers with credit scores of at least 600.

Stated income loans have a minimum FICO of 550 and maximum LTV of 70 percent.

After halting new commitments for two days in early August in order to tighten its underwriting — although applications continued to be accepted, NovaStar Mortgage Inc. offers nonconforming loans to borrows with credit scores as low as 540, and LTVs ranging from the low to the high 70’s.

A new subprime product from Boca Raton, Fla.-based First NLC Financial Services allows borrowers with FICO scores as low as 520 but with low LTVs. To obtain loans with LTVs of 95 percent or 90 percent, borrowers need minimum FICOs of 620 and 520, respectively.

Plymouth Meeting, Pa.-based Wilmington Finance offers its “near prime, similar to Alt-A” mortgages to borrowers with FICO scores as low as 550. It did not respond to a request from MortgageDaily.com for further details.

Other lenders still offering subprime and/or Alt-A mortgages or what one company calls “less-than-perfect-credit-loans,” include Prospect Heights, Ill.-based HSBC, Lewisville, Texas-based Nationstar Mortgage, and Des Moines-based Wells Fargo. But none could or would provide details to MortgageDaily.com.

Officials at known nonprime lenders San Diego-based Accredited Home Lenders, Columbia, Md.-based Fieldstone Mortgage, Evansville, Ind.-based American General Finance Corp., Calabasas, Cal.-based Countrywide Home Loans and its subprime division, Full Spectrum Lending, did not return calls from MortgageDaily.com seeking information about their current subprime and Alt-A offerings.

“The markets still aren’t where they were in June,” concluded Delta Funding’s Biondo. “I don’t know if they’ll ever get there. But as the Fed moves and as consumer confidence increases we’re able to originate more loans and as we see what the credit markets are doing we will seek to improve products and programs.”

Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at demuth933@earthlink.net