Alt-A Programs Quickly Diminish

IndyMac has decided to step up conforming volume and cut back on nonconforming originations until the private secondary market recovers.

In an e-mail to employees Wednesday, IndyMac Chairman and Chief Executive Mike Perry explained that private secondary markets continue to remain “very panicked and illiquid” to the point where it is difficult to trade even the AAA bond on any private mortgage-backed security transaction. Furthermore, unlike past disruptions, the current one “appears broader and more serious, [and] might take longer to correct itself.”

“While we have very strong liquidity, a good amount of excess capital and there are no realistic scenarios that I can foresee that would impair IndyMac’s viability … we cannot continue to fund $80 billion to $100 billion of loans through a $33 billion balance sheet unless we know we can sell a significant portion of these loans into the secondary market,” Perry said. And “right now, other than the GSEs and Ginnie Mae, the private secondary market is not functioning.”

As a result, IndyMac will continue originating nonconforming product, “just less of it,” and further widen pricing and tighten underwriting guidelines to qualify more loans for sale to the government-sponsored enterprises or a GNMA security. The Pasadena, Calif.-based lender wants to promptly increase its percentage of GSE sales to at least 60 percent after having raised these to 40 percent in the second quarter from 30 percent and 19 percent in the respective linked and year-ago quarters.

“The reality is I have a lot of confidence in our industry’s mortgage originators (and in particular IndyMac’s customers and retail loan officers) — to quickly move as many borrowers as possible to this more full doc, conforming loan environment,” Perry added. “I remain hopeful that these very major changes which are clearly negative for our and industry’s loan volumes — will be largely offset for IndyMac by the fact that we have fewer players left in the business.

“We are certainly seeing it play out this way so far this week.”

Secondary market conditions led SunTrust to temporarily suspend its EZ Options Program, effective Wednesday, according to an e-mail sent to brokers.

In March, SunTrust had modified the EZ program to no longer allow, on loans of up to $400,0000, 100 percent loan-to-value regardless of documentation type and occupancy, and first time borrowers on reduced documentation. For all loan amounts, SunTrust eliminated any type of reduced documentation for salaried borrowers, and required that minimum credit scores for all non-primary wage earners or borrowers be 620 on full doc, 640 on stated income/verified assets, and 660 on stated income/stated asset, according to a SunTrust letter.

Wednesday also held changes in National City’s programs and pricing.

The Ohio-based lender discontinued all expanded criteria programs, payment option adjustable-rate mortgages, stated doc nonconforming products, and stand alone seconds, according to an e-mail by a National City employee to brokers.

SunTrust and National City did not respond to MortgageDaily.com’s requests for comment before press time.

And while lenders modify their nonconforming efforts, Freddie has increased post settlement delivery fee rates for Home Possible Mortgages and certain secondary financing mortgages in response to the slowed housing market, rising delinquencies and tighter credit standards. The changes will become effective for mortgages with settlement dates on or after Nov. 1, Freddie said in a letter to sellers and servicers.

Home Possible delivery fee rates will reportedly increase by 100 basis points. The raise will not apply to purchase transactions where the borrower’s income does not exceed 80 percent of the applicable area median income and for properties located in eligible disaster areas.

An increase of 25 BPS will apply to secondary financing for Home Possible Mortgages with an Indicator Score less than 700. The same increase will apply to mortgages with an 80/10/10 secondary financing structure and an Indicator Score less than 700 for loans that fall in the Freddie’s post settlement delivery fee grids of Secondary Financing for Mortgages other than Home Possible and Initial Interest Mortgages and Secondary Financing for Initial Interest Mortgages, according to the letter.

“The revised delivery fee rates for these mortgages ensures that the delivery fee rates are aligned with the associated risk, without affecting mortgages that do not fit the designated criteria,” Freddie said.