In the race to feed investor demand for high-yield securities, mortgage companies are devising ways to milk more loans from the equity in people's homes.
These companies are buying loans from bankers, or funding them for brokers, and often securitizing them for investors-and they're growing bigger and braver by leaps and bounds.
While most lenders will lend no more than 125% of the value of a home, First Potomac, Fairfax, Va., is making eighty 150% loan-to-value loans per month, said Andrew S. Jaymes, senior vice president.
"What's the difference" between 125% and 150%? asked Mr. Jaymes. He was among exhibitors at the Mortgage Bankers Association convention. His company is making the loans to borrowers with excellent credit scores, and it is selling the loans to "all the major" securitizers, he said.
"It's interesting to see how nervous the industry is now about the product because it's brand-new," Mr. Jaymes added. "I guarantee in 24 months you'll see every lender in this conference looking at it."
Borrowers, he added, are "basically upper-middle-class guys who want to restructure their debt."
Long Beach Mortgage Co., which had three booths in the exhibit hall, was looking to pick up correspondent business from conventional lenders with an array of new low-documentation and high loan-to-value products.
Long Beach just introduced a 70% loan-to-value product aimed at D borrowers-often potential homeowners who have just weathered a bankruptcy. "The borrower has to have a situation that came into his life that's resolved," said Sean Byerly, vice president. "A car accident, a death in the family, corporate downsizing-as long as we can determine it's been resolved."
The California lender is also offering high LTV loans with little or no documentation and stretching credit limits for its existing high LTV products.
Wilshire Mortgage Corp., a subsidiary of Wilshire Financial Services Group, Portland, Ore., rolled out a 95% loan-to-value program with no income verification. It's a "credit-score-driven product," explained Bruce Zechenelly, vice president. "We're an A, A-minus lender," he said. "We're willing to do more aggressive loans, but we don't want to do B and C loans."
The company is also offering a 100% LTV purchase loan for borrowers with excellent credit. The product appeals to "doctors, lawyers, people who have just gotten out of school," Mr. Zechenelly explained.
Oceanmark Financial Corp., Hollywood, Fla., was advertising "hard money loans at easy money prices." The subprime lender is offering 80% LTV "lite- doc" loans up to $650,000 for owner-occupied properties and up to $400,000 for second or investment homes.
Despite the influx of competition, originations have risen dramatically month by month, said Christopher J. Mullins, senior vice president of Master Financial Inc., one of the first to offer high LTV purchase mortgages. "There's a tremendous consumer demand for this product," he said.
Many of the lenders offering these newfangled, securitizable products originally got their feet wet in subprime lending, said Mr. Mullins. Master Financial is strictly a prime lender, he stressed, but many of his competitors come from the other side of the fence because "subprime originators have a more open mind. They're more willing to find a product to fit the consumer, not the other way around."