1-23-09 Story Update – while Citi was the headline of this piece, this report was more about the demise of large bank wholesale lending showing how Chase and others are leaving or significantly scaling back leaving a wide open playing field for regional and local mortgage bankers to flourish.
I got word from my contact that Citi still will keep the wholesale channel open but cut back the numbers of brokers they have approved by 80%+-. They will also implement strict controls over their brokers closely monitoring locking, pull-through and quality. This is all about getting back in control of their deal flow.
As I outlined in the reports below, wholesale lending is a sloppy, risky mess right now with a pull through rate of 25-35% across the large name lenders This action will reduce Citi’s wholesale volume significantly but improve margins over time. Because of this they may be able to offer better pricing to their remaining approved ‘special children’ brokers.
In theory this will result in more volume out of each of them mitigating the loss of a large percentage of their brokers today. In a perfect world that is how it is supposed to work but in reality what typically happens is the lender just pockets the extra margin, which upsets their loan officers and brokers. Then the loan officers quit and take their brokers with them. Ultimately the wholesale division shuts down out of frustration going out blaming the loan officers and brokers. – Best, Mr Mortgage
1-22-09 The word is that Citi is following Chase’s lead and is shutting down their wholesale lending (broker) and much of their correspondent (banker) divisions (not verified by Citi). My source got word earlier this morning. Chase kept open correspondent by the way. For those of you that did not catch my Chase report and take on where the mortgage industry is headed over the near-term, please see…
- The End of Large-Bank Wholesale Lending – Time For the Mortgage Banker (144)
Posted on January 16, 2009 2:23 PM
This does not surprise me. This move may not necessarily be a statement about Citi’s health, rather the mess that is the mortgage market. On the other hand, this could also be a sign of something bigger coming than Citi simply exiting the highly unstable wholesale space. Chatter has it that the Obama administration will announce something big this weekend. Some think this ‘something’ is the nationalization of some of the nation’s most troubled financial institutions vs. letting them suck every penny thrown their way into their black liquidity trap holes. Some are saying that Obama will increase the size of the stimulus plan in addition to announcing TARP 2.
There is even speculation that the National ‘Bad Bank’ of the USA will be brought to life to buy up distressed assets from the balance sheets of the nation’s most important banks. However, the latter would likely require much deeper pockets than most think…and I only track the residential side! Additionally, a bad bank buying distressed assets at ‘fair value’ as Sheila Bair said this week could do serious damage to the very distressed asset prices that they are buying and hit hard already battered balance sheets.
Stay tuned. More banks will be shutting down wholesale lending over the near-term which will put a strain on the mortgage market. There is just not the excess capacity through retail or correspondent channels to absorb everyone ‘trying’ to refinance now. There isn’t the warehouse capacity on the mortgage banker side to make a dent either.
At present, application to funding rates (pull-through) is being reported to range between 25% – 35% for the wholesale channel and not better than 50% for the retail channel. Large banks getting out of wholesale will cause all of the applicants who are submitting multiple applications in hopes of getting the best rate; ‘shooting’ for a refi as a last ditch effort before a mortgage mod or defaulting; don’t have a chance of qualifying due to the new sensible underwriting standards; do not have the value necessary to qualify; or think rates are lower than they really are to rush into bank branches swamping them. It will be so it takes three months to get a mortgage done. Already it can take 5-8 weeks when dealing with a well-priced lender.
Mortgage money is not getting to those who need it. For the past couple of months, I have focused on negative-equity, not being able to qualify, lack of Jumbo programs, rates not really being what home owners hear being quoted by the press etc as the reasons why. Now I have to add in…there are not enough loan officers to physically take the loan applications or robust enough processing centers to underwrite and fund the loans. -Best Mr Mortgage
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