Posted on April 28th, 2008 in Mr Mortgage's Personal Opinions/Research
THE REAL STORY – What Wells is saying in very confusing terms is ‘if you have a loan that is not locked and we change our guidelines (retract a program offering), we will still lock and close your loan but at a 3 point hit’. In reality, if they suddenly stopped offering it, it would likely be due to risk and probably should have a much higher rate.
What this does, however, is force brokers to lock loans up front or they could be in serious trouble with their customer if guidelines change, which happens often. A 3-point hit would wipe out most deals. This makes it nearly impossible for more seasoned brokers to await better pricing for thier customers if the market is trending lower. Also, forcing brokers to lock at submission, when many of Wells Fargo wholesale centers are running 3-week underwriting, is absurd.
On the other hand, pull-through rates are running at historically low percentages…less than 50% of all loan applications actually fund accross the industry right now. This comes at a great expense to lenders. (Maybe someone ought to tell that to CNBC when they release the weekly mortgage applications number and everyone spikes the mortgage-related stocks due to a paltry 3% increase in mortgage applications.) But, that is for a different story.
Throughout the years, many lenders have made moves like this as a way to get brokers to lock early in hopes that pull-through rates will increase. It typically does not work and actually tends significantly lower their overall production volume because brokers will always apply with another lenders as back-up. Why should a broker have all their eggs in the Wells basket when Wells is running at lengthy turn-times in such a volatile markets – if rates drop sharply the broker could lose the deal or at the very least have to start the process over with a new lender.
In a perfect world, wholesale lenders (Wells) want all loans locked early because it makes for better pipeline management. However, when loans are all locked up front and rates drop sharply in a short period of time, lenders run the risk of losing loans you have spent weeks working on, unless you have an aggressive ‘rate relock’ policy, which allows brokers to obtain a better rate for their customers.
In the past, many lenders offered a rate roll down policy, where the lender and broker would split the difference of the roll down if it was beneficial to the end borrower. Aggressive relock policies are a thing of the past, however.
In a nushell, this move is likely nothing more than an attempt to tighten up the ship, price loans that suddenly are not offered to where they probably should be priced in the first place and maybe even reduce volume from their wholesale channel. -Best, Mr Mortgage
New Price Adjuster – Effective Immediately
Due to secondary market execution risk, Wells Fargo Wholesale Lending has implemented a new 3.00 price adjuster. This adjuster will be applied (at the time of lock) to every loan commitment in the pipeline not locked/relocked prior to the effective date of a retraction. Retractions include credit guideline retractions, product takedowns, mortgage insurance retractions, and all other types of retractions.
The new price adjuster will be…
–Automatically applied when the loan is locked/relocked on or after the retraction date.
-Added to other applicable price adjusters which may cause loans to exceed high cost threshold and require these transactions to be restructured.
-Charged for each individual retracted parameter.
Please be aware that it is in the best interest of the customer that the loan is locked/relocked prior to the retraction effective date.
Non-Conforming Policy Changes – Effective 5/2/08
In addition to the changes communicated in the Newsflash dated March 14, 2008, Wells Fargo Wholesale Lending will make the following changes to all non-conforming transactions. These changes are effective with registrations and locks on or after May 2, 2008.
Minimum loan score of 700 is required unless specific product/program guidelines are more restrictive. Investment properties are not allowed. Note: High Balance Conforming Loan Program loans are not impacted by these changes.
Pipeline loans must be locked by 8:00 p.m. CT, May 1, 2008. A maximum 30-day extension will be allowed, regardless of lock date or expiration. If a loan is not locked by or expires after May 1, 2008, and a lock/relock exception is requested, the loan will be will be subject to a worsening price adjuster(s). For complete details, refer to the article above. The Wells Fargo Wholesale Lending Broker Guide will be updated as appropriate.
MORE MR MORTGAGE – YOUTUBE SERIES
Mr Mortgage – Non-mainstream March Existing Home Sales Report http://www.youtube.com/watch?v=xi76bemJECU
Mr Mortgage – March Foreclosure Crisis http://www.youtube.com/watch?v=lkQz9Aw4dNo
Mr Mortgage – Here Comes the ALT-A Crisis http://www.youtube.com/watch?v=pmeBSWI9sF8