Hasta la vista, subprime

We promised more on the Wells Fargo decision to exit the wholesale subprime lending business, and here it is: an e-mail, forwarded to L.A. Land, from one of the 200 or so employees axed:

Subject: Hasta La Vista,

Dear Friends:

At 11:00 AM Central Time, Wells Fargo exited the Wholesale Nonprime Market. No more subprime from Wells Fargo, effective immediately. Any loans in the pipeline will continue to fund until 8/31/07. For any questions about your loans, please contact our Ops center at 800-xxx-xxxx.

Thank you all for the business we have been able to do together.

It's been a GREAT run.

And yes, I am looking for a job! Any referrals or leads will be greatly appreciated.

xxxxxxx,

Formerly of

Wells Fargo

Alternative Lending."

Comments

[Mr Income Stream]

That's huge...

[Alma M]

For those of us who have been in this racket long enough predicted this several years ago. Sub Prime was going to go bust eventaully because of the type of loans made, over-priced homes & the so called "Low Doc" app. Which was more of a fraud app since the income was always over stated by the loan consultants. Welcome to the real mortgage world!

[sheila]

this just totally confirms my personal suspicions that the entire artificial inflation of the market was spearheaded by, amongst others, commissioned subprime lenders who can say with a straight face as investors go broke, families lose their homes and credit ratings, and thousands of legitimate homebuyers are screwed by tighter lending and higher RE prices:

"it was a GREAT run."

[d. burr grim]

The Sub prime market isn't about the 20% failure rate and the parasite rich bondholders loosing money they robbed in the first place. It's about the 80% of families that were able to finally join the middle class with home ownership...they were denied a place at the table and sucked dry by huge rents to the same parasites that are loosing money in the bonds. Kudos to all the suber's who can pay and stay in your homes payed for by your hard work....

[arroyogrande]

"It's about the 80% of families that were able to finally join the middle class with home ownership"

Watch out what you wish fore...a good majority of the recent middle class purchasers aren't enjoying "home ownership", but rather "being owned by their homes". Prices have doubled (and more) in the past five years, while wages (both nominal and real) have barely kept track with inflation. Wishing "home ownership" on someone at current prices is wishing a life of living month-to-month with a time-bomb mortgage, in the hopes of keeping "The American Dream". Better to rent an equally nice house and pocket the 50% savings (even taking taxes into account), and building up your nest egg/cash reserves/emergency fund. Getting "owned" by your home is not the American Dream.

There will come a time for new potential homeowners to buy...that time is definitely not now.

- arroyogrande

[Juan]

Hey there still plenty of subprime lenders that can make legitimate customers american dream come thru...

Most of these people can still make their payments because they were "helped" by a honest MB!! (they are still some of us out there).

So don't dispair middle income america you still can dream on!!!

Juan Yglesias
in Kissimmee florida

[Cal]

"The fifth-largest bank in the country said nonprime wholesale lending last year represented 1.6% of its $397.6 billion of residential mortgage loan volume. "

In truth it was an incremental change for a big player, but it was a 6 billion dollar change. The RE industry is oversupplied for the demand level in every way for the current level of demand. The big businesses were willing to hold onto the extra people because they thought the secondary market would "rationalize" (I believe it was Mozilo who talked about that in March). Well it did, but rationalization meant something completely then what the big players thought it would mean.

[RacerManTodd]

I got the disturbing phone call on Friday from my mortgage broker: Sorry... looks like you've just lost your best option on lender for your 100% financing.

My wife and I are kinda being forced into buying now. We'd rather wait another year, but with what the rent market is doing right now, economically it doesn't make sense for us.

We're doing 100% financing (80/20) on a fixed rate, fully amoritized. But because we don't have 20% down, we're lumped in the "sub-prime" category. Truth be told, we do have some that we can put down, but its not 20%, and if we'd just get stuck paying PMI anyway, we'd rather keep a nest egg in what is a very uncertain job market for her in the coming years.

[Cal]

RacerManTodd,

Maybe try a lender that portfolios their own loans (lends their own money and keeps the loan in house) like BofA instead of a mortgage broker. Since they define the underwriting you might have a shot.

Many banks have stopped letting brokers have access to the risky programs because many brokers arent looking out for the lenders interest and just trying to close the deal.

[www.BetterVillage.com, XYZ, PDq.]

What would be the advantage for portfolio lenders to assume risky loans themselves, in light of what's happening out there? They've always packaged off the high risk loans and sold them off. Don't you think if a lender wants to make money and stay in business they will have even more restrictive guidelines for themselves? If you were a bank and your borrower doesn't have 20% or more for a downpayment, and/or they need to do a stated income or stated asset loan... would you lend them the money in this market? Maybe only if the borrower gets some MORTGAGE INSURANCE... watch for the rise of this industry.

[Cal]

"What would be the advantage for portfolio lenders to assume risky loans themselves, in light of what's happening out there? "

Well there is two parts to the equation, 1) No mortgage broker 2) they portfolio their own loans.

The banks that do this with the riskier products have stringent underwriting criteria and are willing to give a riskier product (say 100% financing, I could see them doing SISA only if the borrower used them as their primary bank) because they have underwritten the product so well. This doesnt work when the brokers try to push loans through that aren't in the interest of the company or the borrower. The portfolio lender has to have full control so they can cherry pick the borrowers. The reason why they would do this, especially now, is because there is a liquidity crisis in the secondary market, they are disconnected from it and are lending smart. After the loans season for some time (1-2 years) they are actually worth more to the secondary market because they show they have been performing. This is BofA strategy.

As for Mortgage Insurance, many borrowers hate MI (because they cant do math) and were willing to take a "tax deductible" 20% loan but not a non-tax deductible PMI payment because they see it as "wasting money". Outside of that, as a practical matter, MI underwriting is pretty strict, and if something is out on the edge then the risk premium is prohibitive or the MI is just not granted.