Posted by: cfigueira | May 3, 2010

Underwriting gets even tougher

Virtually everyone knows underwriting has gotten tighter, but in the last few months the tightness has truly become unprecedented, according to John T. Walsh, president at lender Total Mortgage Services.

“The No. 1 problem used to be unacceptable collateral. That has slipped a bit. Now it’s income,” he said. “The No. 1 reason loans are getting pushed back is invalid income.”

Walsh said it has reached the point where if a 4506-T is pulled to check on a borrower’s income and a jointly filed tax return received in response shows a spouse who is not even on the loan is self-employed, the mortgage might be denied.

“They’re making the box smaller and smaller,” he said. “If a person’s not even on the loan where do you stop?”

It has reached the point where a condominium loan might be considered to be in a hard-to-finance “condotel” building if an online consumer advertising outlet like Craigslist runs one ad indicating one unit in a 300-unit building is available for short-term rental.

Condo loans in general, he said, are “really battered. You have to be really careful with condos these days.” Pending litigation for a dog bite incident involving one person in a complex with 100 units and ban on condos in the entire state of Florida have been seen in the market, he said.

“Each passing day a new surprise comes up, shrinking the pool of approvable borrowers,” he said. “It seems to be getting worse. I don’t think it’s going to turn around until we really see appreciation in the housing market. I don’t know how much tighter it can get.”

But Walsh said one thing he is happy about is that more investors are providing guidance on what they will buy upfront rather than leaving lending with closed loans they can’t sell. “It’s great that we can get the guidance,” he said. “If we know what the rules are we’ll play by them.”

In other news last month, although there have been mixed forecasts when it comes to the jumbo/superjumbo market comeback, one player said recently he is fairly confident the high loan balance product’s comeback is going to arrive during the second quarter.

“I’m very optimistic that we’ll be restoring the liquidity in that end of the market,” said David Adamo, chief executive officer of Luxury Mortgage Corp., noting that his company has been working closely with its investor base to design guidelines for the product.

He said investor groups have asking the company to come up with new superjumbo product having loan balances of over $1 million for the first time in two years.

“There’s pent-up demand from the void that’s been left in the marketplace,” Adamo said. “It really can’t be ignored.”

He said his firm is planning expansion in this area that could include opportunities for third-party origination channels.

“We’ll be adding as we get traction,” he said.

Among the company’s customers will be credit unions and community banks that don’t have an origination platform but have a need for the superjumbo product, he said.

By Bonnie Sinnock @ Broker Universe

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