Stated, 100% Programs Fading

Appraisal reviews are the No. 1 unexpected issue to crop up since the recent nonprime consolidation started, according to a nationwide broker survey conducted in December and announced last month by Campbell Communications.

“With increasing defaults in the subprime market, there are brokers lenders want to do business with and those they don’t,” said survey designer Tom Popik in the announcement.”

Credit report disputes were ranked No. 2, according to Campbell’s survey.

“With increasing early payment defaults in subprime, you can see why many subprime lenders are insisting on pulling their own credit,” Popik said. “But the way they manage this process — often not informing the broker upfront of their preferred credit bureau — causes disruptions and hard feelings if multiple credit pulls result in FICO score declines.”

In the San Francisco Bay Area, Chris Goulart with Multicorp Inc. said he is seeing stricter standards in subprime stated and 100 percent loan-to-value loans programs.

“That puts a damper on what people were able to (originate) a year ago,” Goulart told MortgageDaily.com. “To get to a 100 percent loan on a property you need a higher credit score to qualify for the same thing than what was needed a year ago.”

Campbell’s survey noted appraisal accuracy is especially important with 100% LTV loans because appreciation has stalled in many parts of the country.

Stated loan programs are under greater scrutiny as well, Goulart said. “Now they are doing a lot more verification to make sure the (stated income) is really legitimately in the ball park with what these guys are earning.”

Goulart said more due diligence is probably a good thing when it comes to ensuring that stated income borrowers really could afford the loans they are given.

Down in Florida, stated income and high loan-to-value loans are “starting to go away,” according to broker Miles Loss who said he has been in banking and finance for over 20 years.

Loss, whose office originates $5 million to $10 million a month, said appraisal reviews have been brutal. “If you don’t use somebody in their club, they’re going to review you.”

It’s also tougher to get a yield spread on loans these days and while buyers are in a buyer’s market, they are expecting the same negotiations on mortgages, however there is no wiggle room for negotiations on subprime loans today, Loss told MortgageDaily.com.

The cyclical nature of the market is to be expected said one industry veteran who has originated mortgage loans for the past 22 years, and isn’t surprised by how subprime wholesalers are reacting.

Focusing on the positive, Larry Pitts of Dallas, Texas-based Castle Mortgage said this type of market chases marginal brokers out of business while strengthening his position.

“The guidelines have tightened up dramatically,” Pitts told MortgageDaily.com. “FICO score requirements have gone up significantly.”

Pitts said he would begin to focus on a new loan product that is 100 percent, down to a 500 FICO, being offered by a “new aggressive lender.” The only drawback is that the program is full-doc only and the borrower can have no more than $5,000 in accumulative charge-offs.

Stated income loan products, for obvious reasons, are tougher to qualify for around the country, assuming the lender still offers them.

In New York, Kenneth Mendez of NRF Funding Corp., said one lender stopped stated income loans altogether.

“Every loan has to be full doc — and that was my bread and butter bank,” Mendez said to MortgageDaily.com.

Subprime lenders also seem to be backing away from higher loan-to-value loan programs, he said.

In the Windy City, things seem to be looking up since the suspension of a predatory law put into place to protect subprime borrowers, according to Mike Ryback of Northside Mortgage.

“Chicago was really bad about two months ago and now it’s lightened up considerably,” Ryback told MortgageDaily.com. “A lot more lenders came back.”

Constant changes are part of the industry and are to be expected, he explained.

“Some of the lenders are better than they were before — they always change and vacillate slightly but it’s hardly the end of the world.”

Brokers reported to Campbell that rate concessions alone can’t make up for underwriting problems.

“Out of 24 factors brokers use in selecting subprime lenders, factors relating to underwriting were No. 4 and 5, following three factors relating to account executive service,” Campbell said. “In contrast, pricing-related factors were ranked No. 9, 17, 20, and 21 by survey respondents.”