Beware of what you ask for...

When it rains it pours....is this the most screwed up industry on earth or what? The insanity of surviving a walk through the desert with no water or food, dodging rattlesnakes and climbing steep mountains, to find an oasis with a tall, bald, bespectacled man with only a fire hose in his hand is bizarre at best! How do you turn on the spigot with only a few Dixie cups available!!! This industry is massively unprepared for this and surprisingly the smart money is walking away from the table just as the free food is coming out!!! Why? Liability and reality....

It always amazes me in a time where there are a handful of sources for money left that they wouldn't just slowly crank down the rates so that they aren't crushed with volume, blow thru hedges, reno their entire pipeline, and process a bunch of crap to only get paid on half of it, then be obligated to close expiring locks at a loss because they couldn't get to it all!!!If you had a restaurant that was half full and on light staff and half stocked kitchen because you haven't been more than half capacity in 6 months, would you run an open ended 2 for 1 special with free drinks????Crazy!!

Here is why this recent rate move is an immediate train wreck....

1) Line capacity...non-bank lenders have had over 2/3rds of their line capacity trimmed or eliminated with minimal flexibility and patience and increased haircuts for the remaining lines. Many lenders have hit their max for the month NOW....There isn't $100B in line capacity out there including the banks right now!! 

2) So many in the lending community have left the market that there is a very defined limit on capacity to handle the loans. There are $2TRILLION loans available to be refied today, and the industry 2009 estimate for total loans that everyone was staffing for was $1.5T for the YEAR! Got to ml-implode.com and see those who have left or trimmed staff.

3) No one was expecting this quick and severe of a move and cant get ready in time to handle it. They had just shut down the TARP forcing the remaining few to boogie. In the last month the big money who have line capacity in theory have pulled back big time...HSBC(gone),Fortes(gone-down to one-line and it got pulled),CITI(shuts 90% of TPO), Suntrust collapses 2/3 of wholesale centers, Amer Sterling shuts down,, ELoan(the ultimate refi house gone), Wachovia/Vertice, etc. If they knew they could pig out efficiently don't you think they would hang around? Bottom line they didn't see it coming and the unpredictability of how long rates will stay down and the quality of whats coming in makes you want to stay away and not invest.

4) How do you efficiently pick through this pile of crap coming in and give any loan its fair day in court? You know you can only fund 20-50% of locked pipeline in time(since too many idiots locked for 30 days); you have to triage and save the ones with the best chance. How many attorney/title companies are left? Appraisers?? who have to do 6 comps now to show value...A processor/uw will be able to work on 1 loan when she could have done 3 before..

5) It can't be 2003 because there are NO No docs, Fasteazy's, AVM's, etc and 10-30% of homeowners are underwater and need to negotiate for months with a servicer, rate bumps due to FICO/LTV, program LTV/FICO drops, condo/multi/loan size limits, etc.

6) This just won't end well...this will break more firms than it will rescue, and may end much of the broker business....

Don't forget your purchase business no matter how desperate you are! Think how tough it will be to get a timely important purchase through now; so be attentive to your future. Pick only your best fully qualified customers to refi; you have a limit to what can be done. Use your money sparingly and wisely. Every other institution is that is why they are pulling out of mortgages in the face of increasing unemployment and foreclosures with impending falling values.....Your joy of refi opportunities can be the opposite for the true lenders out there..just be aware...

Comments

[Bill McHugh]

Great summary of today and insight into tomorrow. Once again the media does a terific job to make out professional a bit more difficult. It seems the most important thing in life is what % I have on my Mortgage. Because if the person next to someone has a lower one then they too should be entiled to that one. Let the fun begin.

[Frank Mancino]

Once again, you hit the nail on the head. I read it several times. Thanks Frank