Citi to Follow Chase out of Wholesale – The ‘Rest’ Are Next

Posted on January 23rd, 2009 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

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…

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

More Mr Mortgage

210 Responses to “Citi to Follow Chase out of Wholesale – The ‘Rest’ Are Next”

  1. Michael Blomquist said:

    “The ONLY people who should be bailed out are the pension, mutual, insurance funds, etc. who were duped by inept/corrupt money managers and regulators”

    Joan Said:
    Good post, well said. I could not agree more. I think it is so laughable that the MSM threw the public raw meat in the form of the poor UAW worker with that fabricated $70 an hour BS. The MSM has actually convinced most Americans that the other guy’s pension is frivolious or greedy. They got us chewing on each other while the Wall Street crooks skulk away with billions.

    And the part about punishing Realtors, thats good too, full support here! Man oh man, does it take a genius to figure out that most people will say or do just about anything to make $29,000.00 for two hours worth of lieing (oops I mean two hours worth of work, it was work they did, deffinately work, sorry Realtors).

  2. Hey STu and Susan I think that last line of Michael Blomquist’s wonderful post was directed at you?

  3. Joan-

    It’s interesting you mention the UAW union, because I consider your opinion as about as obtuse, callous and judgemental as one who’d applaud the suffering of a worker for picking the wrong industry to work in between 2003-07.

    One can argue that the UAW worker had the same indicators of a fledgeling status quo as did the bubble buyer. They after all, earn well above the national and regional average in income despite their major skill being limited to bolting seats and shit to a chassis.

    You know, they could have gone to night school and learned how to process soy or install or solar panels.

    Re: HOLC – I must give you a hand noticing that the words “principal reduction” were not explicitly stated in the link. You are certainly sharp for a renter.

    What is implied is that the loans were rewritten based on the current assessed value at the time when assets values were deflating (keep with me). An assumption has to be made that the new assessed value was (here’s the kicker) LESS in 1933 than it was in, let’s say 1930.

    Here’s your homework, Joan:

    Did the Gov buy HOLC mortgages for more, the same or less than the underwritten value?

    Feel free to contemplate the answer while pacing in your car port.

  4. Banks have assets, pay ridiculous salaries and bonuses,still pay for lobbying, still pay divendends, they are not insolvent yet. Let them pay for their business decisions before asking taxpayers to.

  5. You write well Michael, but I don’t see any relief or recovery for the housing market with your plan.

    How does revenge against “CEO’s” correct the downward cycle of housing? How does it help correct our economy?

    I am not an attorney, but common sense tells me that “CEO’s” are going to point the blame for creating the exotic/special programs to our government, stating they were complying with their directions and regulations, no judicial relief.

    They operated within our banking department rules/laws, again no judicial relief.

    While dumb and greedy, the credit default swaps are the main reason our financial system is falling apart, of which there was no criminal intent nor regulatory oversight for, just greed.
    This is the only gambling that was really being done in housing by Wall Street.

    Since you seem to be better informed than I, would you happen to know exactly how much in mortgage assets the “banks” own versus the private investors of the MBS?

    According to the Federal Reserve web site the total amount of mortgages outstanding is 12.1 Trillion Dollars.

    If the banks owned all 12.1 Trillion Dollars of outstanding mortgages and the entire total was issued within the last five years and had to be reduced by 40% to conform to the present value, the total “loss” would be 4.84 Trillion Dollars.

    Since we know the above is no where near true, why the following:

    Taxpayers funds have been spent, outlaid, guaranteed to Wall Street to the tune of over 7 Trillion Dollars.

  6. Benzi Benzi Benzi.. good one.. You had me going for a while, which got me to do a full 4 hour research into the issue..

    We are not close to the problems in ’30s.. similar but not there yet…so far just a bad recession.. past results do no garantee the present.. It’s going to be a long time before balance reduction if any! (and not for all)

    With the next tsunami coming that’s going to last few years, why would the government help someone like Javagold now.. rather than see the full impact first..

    Not to mention that FORCLOSURES are the way the market heals itself .. it’s NORMAL! and within the AMERICAN MODEL!

  7. iT would make more sense to help buyers to get in, help with a downpayment or SOMETHING! remember supply and demand?? lots of supply and no demand..

    Why do you think the $7500 credit toward buying a home passed?.. the problem is that is too little and in this information age… lots of potential buyers are still waiting.. I SAY RAISE THE HELP to get in.. if anything! lower FHA’s requirements from 2 year wait to 1 year!

    The person loosing today .. would have a 1 year of saving.. (staying in a home without paying).. and another 1 year to rent and THINK!.. then buy again.. PROBLEM SOLVED!

  8. Thanks for doing the leg work, ex-renter. No protest from me.

    Perhaps we should call Joan in from the carport?

  9. Anything for you Benzi!

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