Thursday, April 19, 2007

Alt-A Update: Bear Goes Bearish

by Tanta on 4/19/2007 04:24:00 PM

Long-time readers of Calculated Risk will no doubt remember that the Nontraditional Mortgage Guidance promulgated by all the major regulators and supervisors of depository lenders was issued on September 29, 2006.

Since then we have posted occasionally on lender updates to their mortgage guidelines, in an attempt to measure the tightening impacts of the regulation as well as the general prospects for a credit crunch.

This morning, the mortgage guideline fairy sent us a copy of an announcement sent by Bear Stearns to its correspondent loan originators. We thought it was interesting. Here are a few highlights:


Please note, current guidelines/matrices will expire at the end of business on May 4th, 2007, all loans underwritten using the current guidelines/matrices must be delivered in purchasable formby June 4th, 2007.

QUALIFYING RATES AND PAYMENTS FOR MORTGAGE LOANS WITH INTEREST-ONLY
AND NEGATIVE AMORTIZATION FEATURES

BSRM will now require borrowers with non-traditional product loans to qualify based on the fully indexed rate and fully-amortizing payment. A non-traditional product is defined as any product that has an interest-only and/or a negative amortization feature.

Bear Secure Option ARM and Bear Option ARM

The qualifying payment, reserve requirements and payment shock will be calculated at a) a rate equal to the greater of the fully indexed rate or the Note rate, and b) a payment based on full amortization assuming a loan balance equal to the applicable negative amortization cap multiplied by the original loan balance.

Negative Amortization Cap has been reduced to 110%

BSRM will reduce the Maximum Negative Amortization Cap from 115% to 110%.

Alt A & Subprime Programs– Interest-Only

The qualifying payment, reserve requirements and payment shock will be calculated at a) a rate equal to the greater of the fully-indexed rate or the Note rate, and b) a payment based on full
amortization using the original loan balance.

Alt A ARM Programs –Interest-Only

• < 3-Year Fixed Period (Interest Only) – The qualifying payment, reserve requirements and payment shock will be calculated at a) a rate equal to the greater of the fully-indexed rate or the Note rate + 2%, and b) a payment based on full amortization using the original loan balance.
• > 3-Year Fixed Period (Interest Only) – The qualifying payment, reserve requirements and payment shock will be calculated at a) a rate equal to the greater of the fully-indexed rate or the Note rate, and b) a payment based on fully amortization using the original loan balance.

MODIFICATIONS TO DEBT-TO- INCOME RATIOS

DTI for loan amounts less than or equal to $1,000,000:
• Alt A Programs
• Change DTI from 50% to 55% for loans that meet both of the following criteria:
o Primary and Secondary residences only
o CLTV < 80%

• Investment properties-Increased to a maximum 50%

• Bear Secure Option ARMs and Bear Option ARMs
• Increase DTI from 45% to 50% as per Program Matrices

“No Doc” and “No Doc w/Assets” doc types are being capped at 80% LTV/CLTV. Primary and secondary residences may be considered up to 90% LTV/CLTV in accordance with the program matrices if all of the following criteria can be met:
o Borrower is not retaining current residence (not allowed at any CLTV)
o Borrower is not a first-time home buyer.
o Payment shock does not exceed 150%.
o Borrower must provide a 24-month mortgage history with 0 x 30.
o Borrower meets traditional trade line requirements.
o A Field Review will be required.


Glad to see Wall Street finally getting around to updating its underwriting guidelines. May I be forgiven for pointing out that I predicted, lo these many months ago, that if they were forced to increase the qualifying payment they'd increase their DTI maximums to compensate?

It does put Richard Syron's comments about these "other market participants" into some perspective, doesn't it?