National City Warehouse Stops Approving Non-Agency Loans

Update: A kind gentleman from National City informed me that the email received was for smaller-scale mortgage bankers only; and that their larger-scale bankers are still operating “business as usual.”

The market for jumbo loans, pay-option loans and other non-agency mortgages just got a lot tighter…

In a recent letter to correspondent lenders (no link sorry) National City announced that they will no longer be approving or funding any non-agency loans via their warehouse lines of credit. These credit lines are extended to their correspondent lenders as short-term financing allowing non-depository mortgage bankers to fund and close loans.

The only loans now eligible for funding via National City’s warehouse facilities are those that meet Fannie Mae and Freddie Mac guidelines - also known as agency or conforming loans.

National City is simply acknowledging the increased risk of getting stuck with loans that cannot be sold to investors on the secondary market. The correspondent lenders, when forced with a buy back from National City, are usually under-capitalized and unable to service the debt of the entire loan. This leaves National City in a precarious position of having to eat the cost of the loans stuck on their warehouse lines of credit.

I am sure that other warehouse lenders are doing similar things to protect themselves from unsellable loans.

This is just the latest blow for National City who just recently closed down their home equity division in light of the turmoil in the mortgage markets.

To me it seems that National City is really struggling. They shutter one division and drastically curtail their warehouse operations, what’s next?

Update: Housing Wire reports that Moody’s has put the company on negative ratings watch citing credit concerns in their mortgage portfolio.

This post was found on BlownMortgage
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