>>>A large interest rate disparity will not be allowed to exist for too long, as market forces will correct it. If you knew your major competitors were offering a rate of 8.25% and you were still offering 6.75%, wouldn’t you think about raising rates? <<<
Isn’t it the other way around?  It seems like this disparity won’t last long because rates from portfolio lenders haven’t changed.  If you are offering a rate of 8.25% vs 6.75%, how are you going to drum up business?

I am always surprised when I see these abrupt changes. Many observers of the credit industry knew the subprime lending was in trouble, but few expected its overnight demise. Many observers speculated that mortgage interest rates would rise, but few expected it to happen overnight.

To speculate on the impact of this reread: Your Buyer’s Loan Terms and The Anatomy of a Credit Bubble.

I work for a bank and we have realtor’s calling us for prices. They always go to brokers since they will make no money from us. I thought it was stange.

Related question:  Are the financing provided by the homebuilder just like mortgage brokers or do they actually set money aside to loan to the buyers?  

awgee…a broker submission is when a mortgage broker submits a full loan application to an originating bank.  The term conforming loan is a Fannie Mae and Freddie Mac term. These two companies, while in business to earn a profit, were commissioned by the US government to start buying mortgages from banks. Banks can only originate so many loans until they don’t have enough deposits to offset those loans. Fannie and Freddie were the first MBS writers. The cost of funds and the FED funds rate is closely tied to the rates banks pay on deposits. It is very loosely tied to mortgages.
A portfolio lender can offer whatever rate they feel will still make them profitable, but it isn’t as easy as just offering a lower rate than a competitor  SInce they do not sell the loans, they cannot continue to originate loans forever. Traditional capitilism will tell you that competition will naturally drive the prices of goods and services lower.  Mortgages are debt financing options however and have the opposite reaction. Portfolio lenders will need to originate less loans for higher rates.

UPDATE:
Wells Fargo has just clipped all ALT-A financing through mortgage brokers.  You can still get an ALT-A loan if you are a borrower calling Wells Fargo directly.
Also:  The new Minnesota Lending laws from hell we discussed have taken effect.  Starting yesterday all  purchases and refinances may only be done FULL-DOC.  No neg ams allowed and no prepayment penalties allowed.  Say by-by to the state’s economy.

http://www.forbes.com/feeds/ap/2007/08/01/ap3978758.html
Here’s the link

I’m still trying to figure out why this is the most important post ever…exaggerate much?

In IHB world, it *is* the most important post ever.  It’s the most profound REIC event in IrvineHousingBlog history, IMHO.

What could top it?  In order:

  Calculated Risk is revealed to be an IHB regular.
  Massive quake.
  NIR turns bearish.
>

I’m still trying to figure out why this is the most important post ever…exaggerate much? This is huge! You can’t buy a house without money!  Brokers have always been more shady when it comes to giving out the money.  I can’t tell you how many people I see who have over $10K income per month per person. The job does not even match the pay. Wells Fargo is usually a trendsetter. Others will follow. It makes sense for the banks.

I’ve discovered the depth of my ignorance through reading this thread.  Help me out please…
Real examples on how it will affect Irvine/OC?  I mean, bottom line is it’s basically tighter lending standards right?  That’s been the trend hasn’t it?

say bye-bye to Accredited
http://finance.yahoo.com/q?s=lend
 

Lending standards and the price paid for mortgage-backed securities are related but not exactly correlated.
A bank may tighten it’s lending standards on it’s own without regards to rates.  Because of the recent turn in the housing market we’ve seen this happening.  What happened yesterday was a knee-jerk reaction caused my pent up frustration in the secondary market.  We now have BOTH rising rates, coupled with tightening lending standards.

Marty….I take it that you aren’t a mortgage broker.

A little on the melodramatic side, these changes have been happening for 3-4 months now.  Long term rates have trended downward the last 2 weeks.

Some great quotes in this article: second mortgages are "radioactive"—"The private secondary market is not functioning."
http://www.bloomberg.com/apps/news?pid=20601087&sid=aCzJuIpuhmcc&refer=home
Indymac to Make `Major Changes’ to Mortgage Lending

By Jody Shenn and Bradley Keoun
Aug. 2 (Bloomberg)—IndyMac Bancorp Inc. is making ``very major changes’‘ to its lending standards and may raise interest rates it offers on home loans because of a slump in mortgage securities, according to an e-mail to employees.
The market for mortgage bonds has become ``very panicked and illiquid,‘’ Chief Executive Officer Michael Perry said in an e- mail to employees. The Pasadena, California-based company will stop making certain types of mortgages completely, he wrote.
``Unlike past private secondary mortgage market disruptions, which have lasted a few weeks or so, our industry and Indymac have to be prudent and assume that this present disruption, which appears broader and more serious, might take longer to correct itself,‘’ Perry said in the e-mail.
The additional credit tightening by IndyMac, the ninth largest U.S. mortgage lender, comes in a period when it’s ``difficult’‘ to trade even AAA rated mortgage bonds that aren’t guaranteed by government-chartered Fannie Mae and Freddie Mac, or federal agency Ginnie Mae, Perry wrote.
``The private secondary market is not functioning,‘’ he wrote.
Non-guaranteed securities linked to subprime mortgages to borrowers with poor credit have caused losses among hedge funds, insurers and banks from the U.K. and France to Taiwan and Australia.
Other ``major’‘ mortgage lenders are taking similar steps this week, with ``some leaving subprime, Alt-a, and other products altogether or restricting some products to only their own retail channel,‘’ Perry wrote in the e-mail yesterday.
Piggyback Mortgages
One area of product change is so-called piggyback mortgages, said David Stevens, head of a home-lending venture for Fairfax, Virginia-based realty firm Long & Foster Cos.
``There’s just no market for’‘ the second mortgages used in lieu of down payments or mortgage insurance, he said today. ``Nobody’s taking them. They’re radioactive.‘’
The memo from Perry, which was addressed to the staff of IndyMac’s bank and was also sent to the board of directors, was confirmed by company spokesman Grove Nichols.
Perry wrote that U.S. Senator Christopher Dodd called him yesterday morning ``seeking an understanding of `what is really going on and how can I and Congress help?‘’‘ Dodd, a Connecticut Democrat, is chairman of the Senate Banking Committee.
Washington-based Fannie Mae Chairman Daniel Mudd is ``telling me that they are `prepared to step up and help the industry,‘’‘ Perry wrote.

I’m not a mortgage broker, but if whatever earth shattering financial event that happened yesterday results in there being less mortgage brokers, I’m all for it!  I never understood the benefits of using a mortgage broker vs. going directly to the bank.  A broker is just a paid salesperson.

Maestro - I think you underestimate the importance of this news.  I cannot no longer get any shares of builders or lenders to short, and the puts are not ridiculously expensive and over-valued.

marty - to understand the importance of this, in simplest terms, (and lm, correct me if I am wrong), imagine if when you were buying your home not to long ago the lender said the rate they quoted you was no longer available.  The new rate would be 2% to 3% higher.

Afternoon news.  It appears there will be some additional major changes in the lending business tommorow, as well as a few more lenders going 6 feet deep. 

awgee— I think you have it wrong.  I called a friend of mine at Countrywide today and he says the rates haven’t changed this week.  If I am understanding the stealth news development correctly, it affects pricing offered only by mortgage brokers, i.e., you can continue to call the bank directly and get the same rate.  I don’t have a problem with that.  It seems to me that banks may be telling mortgage brokers to take a hike because of all the crappy paper they’ve been pushing on to the banks.

marty—
You are correct.  Retail prices remain unaffected for the most part.  I don’t like brokers either; however, my company does more mortgages through wholesale than through retail.  Many companies are like this.  It is very expensive to operate a retail bank.  The majority of home loans are originated through brokers.  That is scary.
The problem is, mortgage brokers (regardless if they are honest or not) are home owners themselves and contribute to our GDP.  We could be looking at the biggest mass layoff of an industry ever.  Thousands of former loan officers won’t be able to make mortgage payments.  I have friends that are struggling as is, and this is just the final nail in the coffin.

"I have friends that are struggling as is, and this is just the final nail in the coffin."

I also know a family that is struggling because of the industry’s woes. It is very sad because I see what is coming, and even they see what is coming, and there is nothing anyone can do about it. They are going to lose their home, and they will have to stop sending their special needs child to the school of their choice, etc. I like these people, so it is sad to see them in this predicament. Of course, they could have saved money a few years ago when the household was bringing in $250,000 per year, but ...

WOW this is amazing.  So pretty much what you are saying is that everything is reverting back to old style lending where you had to get a loan through a traditional bank.

Correct me if I am wrong, brokerage firms could still sell and fund loans as long as they put up their own cash to do so?

sorry marty, my mistake.