Wholesalers Stop Seconds

Accredited Home Lenders Chief Operating Officer Joseph Lydon said during a conference call with analysts on Wednesday that the San Diego-based company no longer will make stated-income loans with high combined loan-to-value ratios to borrowers with credit scores of less than 640. The company will also curtail its first-time homebuyer programs and its combination loan programs that include piggy-back seconds, which will significantly cut its second mortgage originations.

On Monday, Fremont General Corp. sent e-mails to its brokers telling them that it would no longer make piggy-back seconds and all other second lien loans, a spokesperson told MortgageDaily.com.

On Jan. 8, Fremont had eliminated from its loan products 95 percent LTV loans that are purchase money and stated income.

“Most investors do not have any interest in seconds,” the spokesperson explained.

But second lien origination at Santa Monica, Calif.-based Fremont had already been declining, according to figures presented to investors on Feb. 6. In the first half of 2006 second mortgages accounted for 9.0 percent of total volume but only 6.2 percent of total volume in the third quarter. And in those same time periods FICO scores for second mortgage borrowers rose from 653 to 664 while the share of stated-income second mortgages fell to 45.0 percent from 50.4 percent.

Fremont, in January, made its second round of changes in its underwriting guidelines, the spokesperson also pointed out. Those guidelines had been previously tightened in an earlier round of changes last July.

Accredited, when announcing its cutback in loan offerings, also reported a fourth quarter net loss of $37.8 million as the number of delinquencies rose and it had to repurchase more problem loans. That compared with a net income of $43.3 million in the fourth quarter of 2005. However, net income for all of 2006 was $57.7 million.

Fremont is not scheduled to release its fourth quarter and yearend results until Feb. 28. Its net income for the first nine months of 2006 was $113.1 million, down 59 percent from income of $273.4 million for the first nine months of 2005. In the third quarter it suffered a $9.6 million loss on whole loan sales and securitizations of $8.15 billion.

Attendees at the Feb. 6 investor presentation also were told about the institution of more detailed appraisal reviews as well as the tightened underwriting. As a result of these and other changes, investors were told, Fremont is realizing a decreasing level of first payment defaults, which should lead to a lower level of loan repurchases this year.

Similarly, on Wednesday, Accredited’s Konrath predicted that “repurchase activity will begin to decline in the second quarter, reflecting the changes to credit quality and disciplines.”

Last month, Fitch Ratings cut its outlook for Fremont from “Stable” to “Negative,” citing early payment defaults and other factors when it announced the move on Jan. 25.

Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at demuth933@earthlink.net