We first got our hands on the email sent out by Washington Mutual regarding subprime loans and 2nd liens. Then we heard about National City no longer taking applications on 2nd liens. Now, we got our hands on this email sent out by IndyMac:
"Dear Valued Customer,
In response to recent liquidity issues in the secondary mortgage market, we have found it necessary to revise a number of our program limits and underwriting guidelines. The following revisions became effective for loans that were not rate locked prior to 12:00 p.m. Pacific Time today. The Indymac Lending Guide will be updated to reflect the changes shortly.
Loans affected by the revisions below but rate locked prior to the effective date will be accepted and funded provided all QuickPricer® ratelocks are converted to full e-MITS® submissions by August 10, 2007 and all credit packages are delivered to Indymac by August 17, 2007. In addition, there will be no grace period or "auto-extensions" for clearance of conditions after the rate lock expiration. All loans that were previously delivered and not ratelocked are subject to the revised guidelines.
Program Revisions - Multiple Programs
The following revisions apply to the following programs, where applicable:
• Alt A - Standard Products with loan amounts that exceed the current conforming loan limit
• Alt A - Super Jumbo and Ultra Jumbo Program loans - all loan amounts
• Alt A - Pay Option ARM loans - all loan amounts
• Construction to Permanent Loans with loan amounts that exceed the current conforming
loan limit
• Consumer Residential Lot Loans - all loan amounts
• HELOCs - all loan amounts
Documentation Types:
• Stated Income documentation is available only when one or more of the borrowers is
self-employed for loans with the following characteristics:
• LTV or CLTV greater than 70% or
• Decision Credit Score is less than 700
Stated Income remains available for borrowers with all types of income when the LTV &
CLTV are less than or equal to 70% and the Decision Credit Score is 700 or greater.
• FastForward, No Ratio, NINA, and No Doc documentation types have been eliminated.
Maximum LTV/CLTV: For Alt A - Standard Products, the maximum LTV/CLTV is 95%. For the Lot loan program, the maximum LTV is 80%.
Minimum Decision Credit Score: A minimum Decision Credit Score of 640 is required, unless a higher score is specified in the applicable program limit table.
First Time Homebuyers:
• The maximum LTV/CLTV is 90%
• The minimum Decision Credit Score is 680
• Not eligible for Construction to Permanent loans or Lot loans
Pay Option ARM Products: The following products have been discontinued:
• 12 MAT
• 40 Year 12 MAT
• FlexPay 12 MAT 1 Year
• Flex Pay 3/1 LIBOR
The Flex Pay 5/1 & 7/1 LIBOR products remain available."
In layman's terms, 2nd liens are becoming a thing of the past and you now have to come up with 10 to 30 percent as a down payment or have extremely high credit scores to be able to come to the table with less than 10 percent.
Along with this, interest rates have gone up due to lender's fears and the mortgage industry turmoil rather than due to the Fed's actions. Most people do not realize this until they actually go to apply for a loan, see what rate they get and ask why it's so much higher than just a few months ago despite the Fed remaining relatively steady on their rate.
It seems as if the lenders are closing the proverbial barn door after the animals have already escaped. The damage has already been done and now the industry is overeacting in the opposite direction.
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