After the Rate Spike -- Mortgage Operations Turmoil�Kick out the Dead Loans NowMike "Mish" Shedlock
As I noted yesterday [see Mortgage Market Locks Up], a rate spike this large results in chaos. Weeks/months of purchase and refi loan applications will be lost. Mortgage operations centers are parsing through thousands of loans focusing only on locked loans and purchases mitigating potential losses. The rest are dead wood.
Rates are all over the map as lenders assess the damage and price cautiously. Now, it is a mad dash to only focus upon the loans that are locked and have a chance of funding. If the locked loans are not funded quickly and the interest rate complex continues to experience this extreme of volatility, serious losses can occur.
The letter below was just sent by a national bank�s wholesale department this afternoon. This is the mortgage operations nightmare I highlighted in Thursday�s report. In a nutshell, they are kicking aside everything that is not locked or not a purchase in contract.
This is the desperation move that overworked, understaffed mortgage divisions have to make in order to salvage what can be salvaged. Kicked aside could be at least half of their past two month�s of unlocked, unfunded originations that may ultimately parish if rates don�t come back quickly�or the borrower can�t be coaxed into an 3/1 or 5/1 intermediate-term hybrid ARM, which are now at about the same interest rate level as a 30-year fixed was at the beginning of the week.
click on letter for sharper image
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