Mortgage Market

Credit score gaps narrow for FHA loans: Quality Mortgage Services, by Jason Philyaw, Housingwire.com

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The credit score gap for 2010 loans through the Federal Housing Administration fell 43 points from 2006 levels, according to Quality Mortgage Services.

The mortgage quality-control services firm said its data show the average credit score of FHA loans ranked as excellent in 2006 was 665 whereas the average score of a loan ranked fair was 603 for a gap of 62 points. For FHA loans originated so far this year, the firm’s data show excellent loans have average credit scores of 707 while fair loans average scores are 688 for a difference of 19 points.

“This is good news for investors because of the increase number of loans going for securitization where the borrower has a lower probability of a historical or future 90-day late credit scenario,” Quality Mortgage Services executive vice president Tommy Duncan said.

The Franklin, Tenn.-based company performs post-closing quality-control audits and tracks trends of mortgages.

“The decrease in the credit score gap shows that the FHA loan product is limiting itself to home buyers and reducing the number of applicants that would have normally qualified for a FHA loan in 2006,” Duncan said. “Also, this trend may make it more difficult to associate high-risk loans with certain credit score ranges and may place more focus on ratios. This data shows that underwriting templates have adjusted to a higher credit score standard to obtain a FHA loan and may be preventing the tradition first-time homebuyer, or low to moderate income earners, from obtaining a FHA loan.”

Write to Jason Philyaw.

Colonial’s failure could make mortgages more scarce, CNN Money

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The collapse of Colonial BancGroup poses another hazard to the still-shaky housing market: Mortgages could become even harder to get.

The Southern regional bank, based in Montgomery, Ala., was the largest remaining player in warehouse lending, which provides short-term financing to independent mortgage bankers. At one time, these mortgage bankers originated half of all U.S. home loans using these funds.

Today, the warehouse lending market is decimated. In 2007 it was worth an estimated $200 billion; now there is just $25 billion available — 25% of which belongs to Colonial. With Colonial’s failure, those funds could become even more scarce.

“It’s like if they shut down half the concession stands at the baseball game,” said Scott Stern, CEO of the Lenders One mortgage bankers group in St. Louis. “It means the guy who’s last in line is going to have to wait a lot longer to get a hot dog, and in this market who knows what the price is going to be when he gets there?”

The money began drying up when investors started shunning mortgages not guaranteed by government-backed agencies such as Fannie Mae. These loans, made by the independent mortgage bankers, had become closely associated with the worst excesses of the housing bubble.

Among the biggest players in the market were Countrywide, rescued last year by Bank of America, and Washington Mutual, which collapsed last September. This year, two other prominent lenders had to unwind their warehouse business: National City, the troubled Cleveland bank acquired last fall by PNC; and Guaranty Bank, the Texas thrift that warned last month that it expects to be taken over by regulators.

To be sure, everyone isn’t fleeing the market. ResCap, a troubled home lender owned by the government-supported GMAC finance company, said earlier this year that it would expand its warehouse lending business. Citi said this month it expects to put $2 billion into warehouse lines this year.

But with small banks failing and pulling back and many larger players, such as JPMorgan Chase and Wells Fargo, not aggressively pursuing new business, few expect the new entries to reopen the market.

Thus the industry is lobbying Washington to give government-backed Fannie Mae, Freddie Mac and Ginnie Mae a bigger role in warehouse lending.

But with those entities already backing some 90% of current U.S. mortgage originations — and taxpayers on the hook for potentially hundreds of billions of dollars of losses at Fannie and Freddie — that idea is proving a hard sell.

Still, mortgage bankers are hoping the latest tremors in the banking industry will make Washington more receptive.

“We’re trying to show people how important this is, but I’m not sure the urgency is there,” said Glen Corso, a longtime mortgage industry executive who now heads the Warehouse Lending Project that’s advocating an expanded federal role. “We’d like to see a private solution, obviously, but failing that we need to get something in place to keep financing flowing.”