IndyMac Lets You In on How Bad the Market has Become

This is from an email communication to brokers regarding IndyMac’s new rate lock policy. For those unfamiliar with the term: a rate lock is a commitment by the lender to fund (or purchase) the originated loans at the terms agreed to in the lock. Usually locks can be extended for a small fee if they expire. Locks can be on a short-term 12 or 15 day lock or longer term locks ranging from 30-90 days. The longer the lock the more costly.

From IndyMac:

For all program areas discontinued on Friday, August 3rd (refer to Lending Guide Bulletin #07-29), 80/20 first and second liens, Closed-end Seconds, Single Spec Construction Loans, NonPrime (except Full Doc, Level 1++ and Level 1+, with decision credit scores > 620), Classic 12 MAT, FlexPay 12 MAT, and FlexPay 3/1 LIBOR ARM: the following ratelock policy will be in place. This policy will replace the current ratelock policy outlined in Lending Guide Section 2610.

For any type of ratelock extension through e-MITS or the Ratelock Desk, loans will be
subject to an extension fee of 10 points.

Folks, don’t miss that last bullet. You read it right. An extension fee of 10 points. If you don’t fund one of your pay-option, or short-term ARM or closed-end second loans by your lock expiration that loan is dead. On a $100,000 loan 10 points is $10,000.

Right there in plain dollars and sense is how bad the market for those crap loans has become. Alt-A pay option ARMs, short-term ARMs and second mortgages have become the lepers of the mortgage community. Investors won’t take them and now IndyMac and others are just praying that your lock will expire before you fund and they have to eat it at a loss or hold garbage on their books. Either way it hurts their liquidity.

I wonder if there are some internal directives being handed down to drag out the processing of files close to lock expiration? You know - help kill a few toxic loans before the house gets stuck with them?

Consumers: if you are banking (no pun) on having your loan fund (and it is of one of the above flavors) you need to be aggressive in ensuring that it funds before your lock expiration. Otherwise, you are going to be back at square one with financing options that will look pretty God-awful compared to what you are currently locked-in at.

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[Source: Blown Mortgage]