“So, they are going to babysit now,” Yoon said, adding that from a business standpoint, it will slow down the loan originators’ processes. Thomas Yoon, president and CEO of Excelerate Capital, a full-service non-QM lender, said the move essentially means Flagstar now will “monitor every loan because they don’t want that will be hard to sell in the open market, and then they’re stuck with that loan.” The bank also indicates it may adjust “haircuts” - the percentage of the loan the originator must fund itself to ensure it has skin in the game. The Flagstar text message leaked to the media in mid-July confirmed, going forward, funding advances for non-QM mortgages will require advance approval by the lender’s warehouse lending arm. In time, he said, they may well end up being “more of a trend than outliers.” One executive said “it would be naïve” to think Sprout and FGMC will be the only casualties, given the current environment. It’s an ongoing battle, which already has been lost by at least two lenders, FGMC and Sprout.Īnd others in the sector, warehouse lenders included, must now navigate the fallout, heed the warning signs and take action to avoid a similar fate. The examples, all within about a month, illustrate a non-QM lending world in disarray, turned upside down in recent months as originators battle an unassailable force over which they have no control: fast-rising interest rates. The bank calls out 16 non-QM lenders in the text message, indicating it is ramping up scrutiny of its loan reviews, prior to advancing warehouse funding. Just weeks later, a leaked text message from Flagstar Bank provided an inside look at how dire the current climate is for many non-QM lenders. It has since been sued by its former employees. The lender so suddenly shuttered its doors it failed to file advanced notice of the layoffs, as required under federal law. ![]() Sprout Mortgage imploded in early July, leaving its employees out in the cold. (FGMC) filed for Chapter 11 bankruptcy protection at the end of June - leaving four warehouse lenders on the hook for more than $415 million. ![]() Non-QM lender First Guaranty Mortgage Corp.
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