Insider Mortgage: Underwriting Standards
A: An update from Michael McGivney, a sales manager and private mortgage banker at Wells Fargo, on yesterdays internal news release to employees about the change in underwriting standards being put into effect.
Excerpt from actual email distributed by Michael McGivney relaying the internal changes to real estate brokers looking to get an update on how to proceed with prospective buyers:
As you are aware, there is an abundance of news in the financial industry of mortgages and the mortgage industry in deep trouble. We at Wells Fargo have felt minimal, compared to many companies in the industry, effects from the increasing difficulties in the credit markets.HOWEVER, things are changing rapidly industry wide. Rates have been on the rise and underwriting requirements, the rules that govern whether someone gets a loan or not, are changing. Most impacted by these changes are the restrictions being placed on the wholesale channels through which MORTGAGE BROKERS place their loans. Many banks are totally withdrawing from lending to clients through these channels, others are making it very, very difficult for brokers to get loans for their clients through this channel. Wells Fargo, as it hit the news a week ago, raised their rates to brokers by a FULL 1%!!!! MY rates however remain as competitive as ever. It is now obvious, the BEST way to get a client a loan is to go directly to the bank.
As for underwriting restrictions, they are becoming more stringent. However, Wells Fargo will never renege on a commitment once it's issued. Our closing GUARANTEE, yes guarantee, remains in place.
An example of increasing restrictions on approving loans is as follows:
Last week, a client getting approved for an interest only product, like a 5 year ARM, on a $500,000 loan qualified on the payment of $2604 at a rate of 6.25%.
Today, that same client, to qualify for the same loan, will need to have enough income to qualify for the "fully indexed, fully amortized" payment. That means they MUST qualify at a rate of 11.25%, fully amortized. That means a payment of $4863!!!!!! That's nearly DOUBLE the payment. That means they must have nearly DOUBLE THE INCOME!!!
Comments (3)
My mortgage guy at citigroup says flatly to stay away from Jumbos, over $417k and the rate leaps no matter how your credit is, no matter that you put down 50%
I think you can't underestimate the impact of this on the new york and brooklyn market that has been so hot. Something has to give in prices in order to keep payments per month flat for most buyers who are (a) getting a mortgage and (b) having it jumbo.
Of course your broker can tell you there are tricks such as getting two mortgages, one conforming and another perhaps ARM or whatever, but that just increases the jitters on the buy side and leads to bid-pullout situations.
Given that all this happened in the last week, and is unlikely to reverse itself for a month or more, I don't think we've seen prices adjust in the market yet. Sellers are going to be wondering why they aren't getting bids, but will hang in there for weeks before reluctantly trying a lower price point (which won't really make much of a difference, I think. They need to drop by QUITE A LOT to remove the shock of having to pay 8% on your jumbo, or to get a pool of bidders who no longer need jumbos).
Posted by Justin | August 10, 2007 12:24 PM
Tighter mortgage underwriting rules will certaintly mean tougher times to make a sale in today's market. I think motivated sellers should realize that the time to adjust their asking price is now, before the interest rates go up by another percentage point.
Posted by Staten Island Real Estate broker | August 11, 2007 12:51 AM
Wells Fargo is reneging on a loan. They ASKED me if I want to refinance from a 30 yr. 6.625% to a 15 yr. 4.5% fixed. Then I spent a month paying application fees, apprasials, credit report, HOA Cert, etc. and they tell me right before my rate locked expires my HOA does not have enough bond fidelity insurance. HOA covers 25k and Wells Fargo now wants $347,416. Everyday was a new request from them. I have excellent credit, great dependable job, and submitted everything in a timely manner and they pull this scam. I called two lawyers only to find out Wells Fargo (and other banks) are doing this to many people. I'm taking this to the Pubic via the news now. This bank needs to be exposed and they took our bailout money.
Posted by Melanie | July 8, 2009 9:36 AM