Info from my friend who’s a broker.  Subprime, as we all know, is kaput, and Alt-A is now starting to follow suit.  Reason for all this activitiy is because investors will not touch Neg-am or 2/3 year ARMs with a 40-foot pole.  Brokers now have to pay to get these loans through.  Here’s a "short" list of those that have recently suspended submissions:
 1.)Aegis Funding

 2.)American Mtg Network

 3.)Axis Mtg & Investments 

 4.)Bay Capital

 5.)Brenward Mtg Corp

 6.)Broadstreet Mtg

 7.)Crevecor Mtg

 8.)Finance America

 9.)First Source Funding Group

 10.)First Street financial bought by imperial lending

 11.)GMAC

 12.)Loan City

 13.)Master Financial

 14.)Millennium Funding Group

 15.)Moneyline Lending

 16.)Mortgage Lenders Network

 17.)Novelle Financial Services

 18.)Platinum Capital Group 

 19.)Popular Financial Services

 20.)RBC

 21.)Secured Funding

 22.)SLMC

 23.)South Coast Mtg

 24.)South Star Funding 

 25.)United Financial Mtg

 26.)USB Home Mtg

There are several reasons why this is such a crisis. You can say that we are being overly dramatic but we won’t see the casualties right away.
Any loan that is not a conforming loan which is any loan greater than $417k or could not get an automated approval just shot up 100 to 200 bps in rate. This isn’t just ALT-A it includes prime 30 year fixed rates and the ARMs are even worse.
Banks like Union Bank, B of A and Wells who keep and service their loans are not affected because they don’t sell much or any of their loans on the secondary market. At the moment going direct to Countrywide will have decent pricing because they have the capacity to hold their loans and sell them later. That is if and when the market improves they can sell their loans. I don’t know how much capacity they have and how long they can lend money before they have to sell their loans or be forced to stop lending money. If the secondary market continues to be in this state for an extended period of time Countrywide will be forced with that decision.
Almost all lenders pulled their ALT-A products Wachovia, IndyMac, Greenpoint, Wells Fargo etc.
One serious fallout in this are the homes in escrow whether it is a new home or a resale. If you had a loan approved and were told the rate was 6.5% but either you didn’t lock it or the lender closed and now your rate is 7.5% or higher what would you do? Many will cancel unless they can find an alternative solution. Some of the builder’s lenders will be ok depending on who they use as a lender. Many are just brokers or if they are a direct lender they don’t have the capacity to hold loans for very long. The cancellation rates at the homebuilders will shoot up.
The other serious fallout is going to be job losses. The pricing at some lenders is so awful it will force them to shut down. It’s not if OC hasn’t already seen enough layoffs that we need more. This can be brutal to the economy. 

...rumblings all over the blogosphere this afternoon that more doozies will be dropped on Monday morning.  I wonder what else can happen at this point.

"It is very expensive to operate a retail bank.  The majority of home loans are originated through brokers. "
I still don’t understand why banks use brokers, as they seem like they are highly overpaid middlemen.  What do they bring to the table to be worth what they are paid? 
I’m thinking the reason the industry uses them is because they (the brokers) can be crafty about selling products, such as sneaking in the exorbitant early payment penalties without bringing it to the buyer’s attention.  By the time the victim finds out, the broker has changed his cell #, hair color, and is driving a newer BMW (which you helped pay for!).  Brick and mortar banks don’t want to deal with these angry customers - they can’t hide.
Certainly the banks could pay a college grad less than half of what these brokers make to just sit at a desk in the bank to make honest and competitive loans to worthy folks.

Well. 
 I’ve been skeptical for a long time, but today I have changed my mind.  At least I have the integrity to say so.
Seems the private secondary market is indeed going away.  When a company like Indymac says they will basically only do conforming going forward, it is nothing less than an earthquake.
I have literally been shaking all day at the broader implications.  We are talking about the possibility of the collapse of our entire economy.

Janet,

Welcome to our forums. If you are the Janet I think you are, your conversion is remarkable.

Seeing what lies ahead is frightening. It will not be pretty. Like any other financial upheaval, we will survive, and in the end we will prosper again. Maybe next time we won’t build our entire economy on borrowed money.

And with the shutting off of the easy money spigot, I think it’s time for IR to reprise "Your Buyer’s Loan Terms" on the front page.

We were on a conference call with a major commercial property lender on Tuesday and they warned us of this happening (our sister company is a commercial real estate banker).

They said something about a tough week coming ahead and I had no idea what they were talking about. It all makes sense now. It seems like all the bad debt (sub prime & alt-a) is affecting our commercial financing end also. Rates are being quoted 1-2% higher these last couple days because the lender feels that they need to protect themselves.

We have been told that lending terms will be on "day to day" updates until further notice.

Jim’s take on what this means to the market.

lendingmaestro - Countrywide says it has $50 bil to lend.  Do you know how much funding Countrywide does per day, and how long $50 bil will last?  It sounds like alot to me.

Just found out the $50 bil is financing, not actual accessible funds.  Or in other words, Mozillo could be lying through his teeth again.

Don’t know if anyone is keeping up on the CDS market or even if anyone realizes why it is relevant to the mortgage market, but it looks like the spread is exploding by another 70 points this morning.  And the hilarious part ... bubblevision is assuring all with the sound on that the credit market is stabilizing.  Yeah, stabilizing like 6.5 aftershocks.

Let’s all take a moment to mourn the passing of American Home Mortgage (AHM)

www.bloomberg.com/apps/news

www.marketwatch.com/news/story/american-home-claims-more-victims/story.asp

Nearly 7,000 more jobs lost. . .

I was reading this article this morning that was mostly bearish in its tone.  However, I was shocked (and maybe I shouldn’t be by now) about the false hopes that some people are leaning upon. 

www.businessweek.com/investor/content/aug2007/pi2007081_127444_page_2.htm

My favorite quotes are:

1.  "Subprime woes have moved far beyond the mortgage industry. Already, at least five hedge funds have blown up. The latest worry is that a recent slump in the markets for corporate loans and junk bonds will deepen, jeopardizing the financing of leveraged buyouts, a big profit driver for investment banks. What’s more, fears are growing that banks may be on the hook for some of the $300 billion in loan commitments they’ve made for buyouts already in the pipeline. The mood has gone so somber that derivatives traders are betting that bonds issued by major investment banks will tumble to near junk territory."

2.    Wall Street is banking on the credit market improving in September after big institutional investors return from summer vacations.  (I wasn’t aware that big institutional investors work on a school-year schedule).

3.   "The ultimate worry is that the trouble in the junk-debt markets will spread to the traditional corporate bond market and create a full-fledged credit crunch that would threaten the economy. That scenario may be unfolding. Issuance of investment-grade corporate bonds fell 72% in July from June’s level and 34% from July, 2006, according to Dealogic. And some say the subprime-mortgage and leveraged-loan markets are harbingers of wider credit troubles. Greg Jensen, co-chief investment officer for money-management firm Bridgewater Associates, wrote in a July 31 client note: "Both problems are just the symptoms of…a significant financial fragility built on too much liquidity for too many years." Adds Leslie Rahl, president of Capital Market Risk Advisors in New York and former co-head of Citibank’s (C) derivatives group: "Nothing stays rosy forever. We’ve been in a rosy world, with credit spreads at historically tight levels for some time now. But we seem to be leaving it."   (Translation:   Monopoly money was fun while it lasted).

Looks like Wells Fargo just jacked up their rates on a 30 yr jumbo from 6 7/8% to 8%!!!!!!!!  (per the WSJ "Heard on the Street" column)

WOW!?!?!?

From Wells Fargo’s website:

 
     
        <th class=“c21Hdr”>Product</th>
        <th center;” class=“c21Hdr”>Interest Rate</th>
        <th center;” class=“c21Hdr”>APR</th>
     
     
        <th axis=“product” id=“a1” class=“c21Hdr” colspan=“3”>Conforming – loan amount less than or               equal to $417,000; $625,500 in AK and HI.</th>
     
     
        <th id=“r1”>40-Year Fixed</th>
        6.750%
        6.954%
     
     
        <th id=“r1”>30-Year Fixed</th>
        6.625%
        6.860%
     
     
        <th id=“r1”>15-Year Fixed</th>
        6.250%
        6.631%
     
     
        <th id=“r2”>5-Year ARM</th>
        6.250%
        7.227%
     
     
        <th id=“r2”>3-Year ARM</th>
        6.500%
        7.474%
     
     
        <th axis=“product” id=“a2” class=“c21Hdr” colspan=“3”>Jumbo          – loan amount greater than           $417,000; $625,500 in AK and HI.          </th>
     
     
        <th id=“r3”>40/30 Fixed-Rate Balloon</th>
        7.250%
        7.394%
     
     
        <th id=“r3”>30-Year Fixed</th>
        7.000%
        7.156%
     
     
        <th id=“r3”>15-Year Fixed</th>
        6.500%
        6.749%
     
     
        <th id=“r4”>5-Year ARM</th>
        6.625%
        7.297%
     
     
        <th id=“r4”>3-Year ARM</th>
        7.000%
        7.524%
     
     
        <th axis=“product” id=“a3” class=“c21Hdr” colspan=“3”>FHA              – loan limits vary by county.            </th>
     
     
        <th id=“r6”>1-Year ARM</th>
        6.625%
        7.956%
     
 

From the WSJ article that Optimus Prime (love that nickname) mentioned:

Lenders are tightening standards and "raising rates like crazy," said Melissa Cohn, chief executive of Manhattan Mortgage, a New York mortgage broker. She said <a class=“times rolloverQuote”  true”>Wells Fargo</a> & Co. is charging 8% for a prime jumbo 30-year fixed-rate loan that carried a 6 7/8% rate late last week. (Jumbo loans are those too large to be sold to government-sponsored mortgage investors Fannie Mae and Freddie Mac.) A Wells spokesman said rates are lower on loans made directly by the bank than on those through brokers.

For comparison purposes: 

Bank of America:  ($600K loan with $120K down)

40 year fixed:  7.75% w/1.014 points (7.918% APR)

30 year fixed:  7.125% w/1.106 points (7.310% APR)

5/1 ARM (I/O):  6.875% w/1.066 points (7.42% APR)

5/1 ARM:  6.75% w/0.973 point (7.363% APR)

(Although you can still get a 1-year ARM with a 1% teaser rate-Sign me up!!!!)

Interestingly enough, I could not get an online rate quote from either Quicken loans or Countrywide. . ..

The context of the of Wells 8% int rate is that IF YOU GO THROUG BROKERS.  I think what Wells wants to do is to do more loans in house to make sure that they have more control over the loan. It is the loan brokers who are getting killed. Personally, I don’t see the need for a broker in the internet age.  Brokers make the spread between what they can get from the banks and what they charge the home owners.
Mortgage business won’t go away, and this rate jitter has be temp.  As most of know, market always over reactor on both good news and bad news.  Just wait it out for couple months at the most.  I don’t see 8% being a sustainable rate unless fed increase their rates.

>>>She said Wells Fargo & Co. is charging 8% for a prime jumbo 30-year fixed-rate loan that carried a 6 7/8% rate late last week. <<<
That’s awesome.  Home prices effectively just plunged 12% in a week.

Mortgage business won’t go away, and this rate jitter has be temp.  As most of know, market always over reactor on both good news and bad news.  Just wait it out for couple months at the most.  I don’t see 8% being a sustainable rate unless fed increase their rates.

Sustainable if you still want to run a bank…otherwise their borrowing cost will bleed them dry if they keep doing 6% loans ...welcome to the NEW (old) paradigm of lending!!!   Where you need some of your (borrower) own skin in the game!

Irvine123, you have gotten used to having low interest rates.  7 (and even 8) percent interest is very low historically.  Interest was running 12-15 percent in the 1980s and early 1990s and even higher previous to that.

several clarification:
a. I am only talking about prime loans with at least 20% down ( so borrowers does have skin in the game, Optimusprime).
b. I fully understand there were 12 to 15% in the 80s and 90s, IrvineCommuter.  but pls correct me if I am wrong here, what is the fed rate at that time????
All I am saying, for the person who has enough downpayment, good credit score, they can still find good rates. It won’t as good as the "old good times’, but it won’t be 8% unless fed increase rates.  I don’t think the appetite for Prime loan ( again fully  doc, large downpayment) backed bonds will be much less in the long run.  That is why I am saying it is a "jitter".   Just go check out UnionBank’s site ( I don’t work for them, and I am not in real estate business). They have 6.5% rate for 10 year adjustables - just remember avg. folks doens’t live in a house for more than 10 years.  
Also, it appears that many of us on this blog are relatively young.  If you work for a large Fortune 500 company, and want to get promotions, it is given you will have to move around. So what is the sense of getting a 30 yr fix mortage if you can get a lower rate with a 10 year fixed rate?  Off course if you have decided not to move out of your own house at the age of 30, then good for you, go get a 30 year mortgage.
 
 
 

 
30?  ha ha, that a few years ago.  This is probably the final implosive push before the catastrophic nuclear cascade (at least on the secondary/sub prime/alt markets).  I can see though that most lenders will push up their rates a bit to take up the slack, making ALL of us pay for the lower  performers of the bunch.  Anyways good luck and keep us apprised of anything new that happens.
-bix

More analysis on the topic:

www.cnbc.com/id/15840232

My favorite quote (paraphrase):  One lender (AHG) shuts down while another prices itself out of the home mortgage business (Wells)

I feel I should explain some things about the broker vs bank comparisson. 

Banks operate like retail stores. They only sell their products. They have built in profit margin of 2-3%+ of the loan amount (higher rates and fees to get this). There is no wiggle room, no discussion.  In addition, banks are notoriously dirtier than brokers, since they are NOT held to the same standards as far as underwriting goes.  They generally don’t do verification of deposits on loans originated via retail.  Having worked at a bank, I have seen the most serious and outlandish examples of fraud you can imagine.

Brokers operatate like wholesale stores (Costco and such).  They carry products from every bank. In addition, since the broker(wholesale) business accounts for OVER 2/3’s of ALL the loans done in the country, they get huge discounts form the retail bank prices. This means they can give a homeowner more choices, lower rates, and do it cheaper. In addition, brokers loans are SCRUTINIZED by a team of processors, underwriters, QC, etc. Everything is checked and verified twice. It is a common misconception that the banks business will be cheaper, cleaner, and more honest. In reality, there is no such thing.  They are responsible for monitoring themselves on transactions that they make massive amounts of money on… conflict of interest maybe? The banks will be quick to throw everyone BUT themselves under the bus regarding the lax lending standards of the past 5 years.  Probably focusing on brokers and wholesalers. Pot meet kettle.

Funny Cramer was just on CNBC sincerely and passionately screaming that the Fed has no idea how bad the credit market is right now. He says Ben needs to do something, anything, call someone but do something.
I don’t pay much attention to him but this time he was so serious that I thought he was going to cry and he nearly said the f-word.

I just saw the clip and boy was he animated. . .  That’s one of the things I like about him.. .  Can’t wait to see him on his show.