I just spent about an hour on the phone with Ron Delfs at Equity Northwest, our preferred lender [ron@equitynorthwest.com].
Ron had reviewed my previous post, so I asked him candidly what he thought about The Mortgage Professor’s article in The Times. He thought it was good, but that “down here on the ground it’s about 10,000 times worse”. Here’s the breakdown from our conversation:
1. Non-conforming loan programs are largely no longer offered i.e., the “stated income”, “low doc”, or “no doc”, or less than 20% down loans simply don’t exist. Why? Wall street is currently not interested in buying non-conforming mortgaged backed securities. They are considered high risk.
2. The above condition has cut the business, and thus income, of many mortgage lenders by as much as 80%. The figure is conjecture on our part. Nonetheless, large secondary market mortgage companies are going out of business at an alarming rate.
3. The worst part: [I always enjoy talking to Ron because I learn stuff] All the lenders that made the iffy loans to iffy borrowers that are now defaulting across the country have a major problem. Apparently it has been standard practice to include a “one year buy back provision” when the iffy loans were sold to the secondary market in case the borrower defaulted within the first year. According to Ron, there are many, many mortgage brokers that might operate with a credit limit of around $100,000,000. It sounds like a lot of money, but it can disappear in a hurry when buy-back demands start rolling in. This is what is putting lenders out of business: the “buy backs”.
4. What to do? Keep your credit score up. Make sure your lender is solvent. Lock as early as possible to get the rate/program that is most favorable to you, as choices are becoming more and more limited.
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