Citi Wholesale Update 1-23

Posted on January 24th, 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 my alert on Thursday ( link below), the 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 on Friday that the wholesale channel will remain open but cut back the numbers of brokers they have approved by 80%+-.  Wells Fargo just did the same – word is 90% of brokers will be cut off due to ‘performance’ issues. They will 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 many reports over the past two months — as the sector got busy again,  wholesale lending emerged a sloppy, risky mess with a pull through rate of 25-35% across the large name lenders.  This scaling back and focusing on the top 10-20% of brokers 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 broker mitigating the loss of a large percentage of their brokers today.  In a perfect world that is how it is supposed to work — the 80/20 rule…you get 80% of your business from 20% of your brokers so focus on the 20%. The problem with this is that good brokers, those that could become part of the 20% with a little work, and high volume brokers that are sloppy but could change with a little work get cut off.

But in reality lenders do this because they are out of control and losing money. They want to downsize and lay off staff but can’t come out and say that.  Once the volume eases up and they are back in control of their flow, 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 to their new job.  Ultimately the wholesale division shuts down out of frustration going out blaming the loan officers and brokers. I have never seen it happen any other way. – Best, Mr Mortgage

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…

What ‘Boom’ is Fannie Gearing up for?

For those of you who think I am crazy with my calls that…the mortgage money is not getting to those who need it; rates really are not that great for most; most can’t qualify due to negative-equity, tightened guidelines and no Jumbo product; ‘funding’ volume is light despite ‘applications’ soaring; pull-through rates are abysmal; and mortgage lending is a mess check out this story that came out last night. Is Fannie Mae gearing up for a refi-boom or foreclosure-boom?

Fannie Mae cutting local jobs

Friday, January 23, 2009, 12:42pm EST  |  Modified: Friday, January 23, 2009, 1:02pm

Fannie Mae, seized by the government last fall, is cutting hundreds of jobs locally.

“We are realigning the company to focus on our primary objectives,” said Fannie Mae spokesman Brian Faith. “We will actually be increasing on personnel and resources in areas that have to do with preventing foreclosures and loss mitigation.”

The company will likely end the year with the same number of employees it currently has, he said.

Many of the new hires will likely be in the Dallas area, where Fannie Mae’s foreclosure prevention efforts are centralized.

Fannie Mae (NYSE: FNM) has about 6,000 employees companywide, the vast majority of which work at its headquarters in the District and two other Washington-area locations.

9 Responses to “Citi Wholesale Update 1-23”

  1. Wow, my guess would be foreclosure boom based on the department they are hiring for.

  2. I am an underwriter who is sick and tired of making sweet refinance deals for rich people. The one time I had the opportunity to possibly help someone who needed it, it did not fit guidelines so I had to decline it. Go creditors!!

  3. there is nothing wrong with conservative people who qualify for loans being able to take advantage of the low rates. Most of my clients are super conervative and no where near upside down and they are getting the low rates. Doesnt mean their rich. They just didnt use their house as a bank like 90% of the world the last 5 years. Good for anyone who does qualify right now, means they planned well and lived within their means.

  4. As typical MrMortgage , some of this info just crap. Do you have anything in writing that Wells cutoff 90 % of brokers ? They did cutoff a few Tier 3 brokers.

    They are hiring hundreds in Wholesale, why don’t you do a report that ?

  5. Mark F,

    Where do you get that M.M. implies there is something wrong with conservative borrowers taking advantage of low rates?

    The statement is more a response that the government is spending tax payer money to keep rates low in an attempt to solve the housing crisis, but failing. Again all the money spent ends up in the hands who need it least.

    As MM stated before the low interest rates will in effect provide homeowners with the Dear John letter. No more love from their home. Once the appraisal is finalized reality will surface; there will be no more cash outs!!

    The borrower can continue to pump money into a one sided relationship or cut its losses. If they are smart they should stay in the home for the next 6-12 months until foreclosure is finalized or politicians promulgate more foolish and divisive legislation.

    Richard Roberts,
    Why would you attack MM for not providing his confidential source when you state you know wholesale is hiring and provide no references? You also state they did cut off a few tier 3 brokers. Reference?

    Are you certain they are hiring for wholesale? Perhaps they are just hiring underwriters that will go to retail if they are able to effectively boycott brokers and correspondents; provided rates remain low. Perhaps the hiring is BS.

    Could it be possible that Wells et. al are cutting brokers for lack of solvency vs. production?

    All lenders have agreements with brokers to repurchase loans originated via fraudulent terms.

    Undoubtedly, investors want them to go after these brokers for the toxic loans and replace the bunk deals with good deals, but most likely 95% of all brokers during the last 5 years were/are financially unable to buyback any of the loans they originated. These provisions were more to falsely comfort the investors. In addition, this would OPEN the door to the lenders repurchasing loans that were fraudulently originated by their own retail agents.

    There is RARELY EVER any one reason people make decisions.

    Please quit with the criticisms, especially the hypocritical ones; these are brief articles not intended to address every angle of the topic discussed.

  6. “these are brief articles not intended to address every angle of the topic discussed.”

    I just think MM is the type of person that would like bigger lenders to pull out. Many have cut off the bottom tier brokers including HSBC and Provident , etc. As far as hiring job announcements are posted ,but of course you can call to verify.

    Let me add , MM posted in November that WF was closing 8 out of 9 sites. Is he man enough to ever print a retraction when he is wrong ?

  7. The Wells wholesale info is accurate. They are doing the broker chop which they should. I was told the pull-through cur off line was 75% but then I was told 70% so didn’t print. The fact is wholesale is a crappy, costly business because the banks have lost control of the broker and the broker have lost control of their clients.

    What they will end up doing over the next 3-6 months is shut down wholesale all together following Chase’s lead. Then, go out to their best correspondent mortgage banksters and increase their warehouse capacity and let the local/regional mortgage bankers have wholesale.

    By the way, below are all if the wells fargo stories in 2008…

    # Wells Fargo Stops Doing Limited-Doc GSE Loans (2)
    Posted on November 17, 2008 2:45 PM

    # Meredith Whitney Speaks on Banks – “Wells Fargo $20 Per Share”! (26)
    Posted on November 5, 2008 8:18 PM

    # Wells Fargo Absolutely Did Subprime, Stated, Interest Only, No Ratio Etc (71)
    Posted on October 3, 2008 3:59 PM

    # WSJ – Wells Fargo Cheated on Earnings Again! (27)
    Posted on August 14, 2008 10:55 PM

    # Mystery Surrounds Wells Fargo’s Earnings (42)
    Posted on July 17, 2008 1:39 PM

    # Warren Buffet – ‘Wells Fargo to Experience Unusually Large Losses’ & BofA May Cut Dividend (32)
    Posted on May 8, 2008 1:40 PM

    Posted on April 28, 2008 4:59 PM

  8. Michael B.

    My post above was a response to the post just above me
    where the underwriter mentions that he is tired of approving
    loans for “rich people” when others need the help cant get approved.

  9. HOw can Wells et al cut their staff? Cutting off brokers won’t slow down the number of applications. They will just go elsewhere. The 20% of the brokers that the lenders keep will be sending in double the volume.

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