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Thursday, October 04, 2007

Oh Look, More Innovations

by Tanta on 10/04/2007 07:20:00 AM

Sorry my posting was so light yesterday, but I was working on my Ten Point Plan in anticipation of being named Mortgage Czar. I actually completed Point One, no sacraments for any public figure who recommends negative amortization ARMs. Then--get this--I find out that apparently this "church-state separation" and "free speech" and some nonsense about these products being legal are going to hamper my plan. Well, jeepers, why call it a "czar" if it can't involve theocratic absolutist ukases? I mean, if it's just going to involve a bunch of posturing with no ability to imprison dissidents, I'll stick to blogging. Why bother to change out of my pajamas for that?

Fear not, though, innovation in the mortgage gig continues apace. From the Washington Post:

CitiMortgage plans to announce today that it has set aside $200 million for mortgages to Washington area residents who have limited credit histories and therefore often end up with high-cost or risky home loans. . . .

To qualify for the program, a person must be in the country legally and have alternate credit lines -- such as rental payments, utility bills or a tithing record -- that a lender can use to evaluate creditworthiness.

Gathering the paperwork to confirm these trade lines historically has been a laborious process that could take months, which often discouraged potential buyers and hurt their chances of closing a deal.

But Neighborhood Housing Services, a sister organization of District-based housing advocacy group NeighborWorks America, will use a system that automates the credit-verification process and delivers results to CitiMortgage within 48 hours.

The technology evaluates whatever information is available at the national credit bureaus as well as from other sources. . . .

Mary Lee Widener, president and chief executive of Neighborhood Housing Services, said the program is set up to comply with technical rules that allow CitiMortgage to service or collect payments for all the loans, even though the loans are resold. CitiMortgage has agreed to work with Widener's group to keep borrowers in their homes should they face job loss, illness or other events that temporarily prevent them from making payments.

"It's important to us that we have one lender to deal with in those situations," Widener said. "Our borrowers have more than their share of life events, but we've been able to stick with them, and it's very rare that we have to move to foreclose." . . .

If the best loan is with CitiMortgage, then CitiMortgage will fund that loan and sell it to Neighborhood Housing Services. The nonprofit group will then sell the loans to State Farm and Fannie Mae.
So, basically, we have CitiMortgage offering to do $200MM of "nontraditional credit history" loans, which have been around for what, 20 years? Only this time, they'll be really fast because technology is involved, and we know that the biggest problem with loans to first-time homebuyers and persons with possibly shaky credit has always been speed: you really need to do those loans just as fast as you do the ones based solely on simple-minded FICO qualification. And that thing about the importance of a single lender/servicer? Yeah, well, that would involve having some outfit like Citi actually hold the risk on these loans, and we can't have that. So let's think outside of the box: we'll sell the loans to an investor, just like we always have, and Citi will just be the servicer, like it always has, and the answer to all questions will be "I can't do that, it's not in my PSA."

Mortgage Czar? We don't need no steenkin' Mortgage Czar. We're doing just fine innovating our way out of this mess.