As subprime lenders continue to fold their tents, either shutting down or being acquired (most often by secondary market firms), those who remain in business are learning that Wall Street and other funding sources are securely in the driver’s seat.

“The credit line (providers) are calling the tune; they’re our partners now,” shrugs one monoline originator, pleased to still be in operation but not a little bitter about the loss of autonomy demanded in return for continued financial support.

“Wall Street tells us what to do; what kinds of products to originate, then our loan officers tell the brokers and they tell the consumers,” he says, adding: “These guys are not cutting us any slack.”

And, for good reason, perhaps, as last week there were in excess of 300 rating agency downgrades of MBS, asset-backed securities supported by home equity loans, and collateralized debt obligations containing residential and commercial MBS. 

In the new, “take-no-prisoners” environment, the rules of the game have changed — or perhaps merely reverted to the “good old days.”

Today’s borrowers must make a down payment, says the originator, “and have the right debt-to-income ratios.”

Yet, he says, “Surprisingly we’re still getting requests (from brokers) for 100 (percent) LTV, 626 FICO loans that would take someone from a $1,000-per-month rent to a $2,700 monthly mortgage payment,” including principal, interest, taxes and insurance.

“We can’t do that anymore,” he declares, noting that in the past, with the proper underwriting, such a loan could be made and, if properly underwritten, it would perform.

But now is not then, says Dave Matthews, senior vice president and chief information officer with the Federal Home Loan Bank of Chicago. He likes the trend toward a more hands-on presence for Wall Street.

“They know how to transform industries,” he says, adding the caveat: “But only if they’re in it seriously” — which he believes they are.

Street wants production business

According to the founder of another subprime originator, which recently was acquired by an international investment firm, the sale had to be made to “save everybody’s job.” He says “the Street wants to own [the] production business,” which means “down the road, it’s going to be harder for the smaller guy to survive.”

In this new investor-dominated market, tighter funding parameters are inevitable, says the first subprime lender, which means a reduced role for the vaunted FICO score.

It is no longer the deity of the past, he says, noting that in a more anxious time, it is less than a reliable indicator of credibility.

“A 750 FICO borrower may have only two trades [accounts with established credit histories]: a cell phone bill and car payment. That could be it for the past 24 months, with no other payment history.”

In a nod to letting market forces solve the problem, James Lockhart, director of the Office of Federal Housing Enterprise Oversight, recently cautioned regulators and legislators “not to overreact, and not cause an unnecessary credit crunch that would end up just hurting the people you are trying to help.”

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
Thank you for subscribing to Morning Headlines.
Back to top
Real estate news and analysis that gives you the inside track. Subscribe to Inman Select for 50% off.SUBSCRIBE NOW×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription