No doubt you have been hearing a lot about the changes taking place in the mortgage market over the last 4 days involving every loan except conventional conforming ones.  My previous post, Mortgage Market Meltdown - Will it be Subprime Only? (dated July 11th), talked about how the effects of the subprime market was going to spill over into the rest of the markets, including A-paper.  Well, that is what is happening right now.

Call it what you will, liquidity crisis or whatever, the effects are easy to see.  As I was quoted in MarketWatch today, "If something is perceived as risky ... they're going to ask for a higher interest rate on that product".  I was sad to learn that American Home Mortgage and American Brokers Conduit in particular were closing shop and filing for Bankruptcy protection.  Rates on every type of "risky" loan, including A-Paper Jumbo Loans (non-conforming) are rising, despite Mortgage Backed Securities (Bonds which drive conforming interest rates) are moving in an opposite direction.

I say "risky" loans, but some are not really all that risky.  Typical Jumbo Loans with a borrower with excellent credit and full documentation to qualify on are among the least risky loans.  However, since they do not fall under "conforming" guidelines, they do carry added risk and in this market any extra risk is going to bet met with higher rates and tougher guidelines until the dust settles.

So, if you are in the process or are thinking of getting a loan that is anything other than a conventional conforming loan, get your paperwork to your mortgage broker and have it underwritten and closed ASAP.  We may see more lenders like AHM make this announcement to the mortgage brokers they work with..."we are no longer funding loans" or simply they are stopping acceptance of loans.

Additionally, I suggest locking in your rates on these types of loans as soon as possible right now.  Conventional conforming loans are a different scenario though.

Many changes are happening and everything may appear to be doom and gloom again in the mortgage industry, but there will be better times ahead after the dust settles and the necessary changes are completed.

Side Note:  I was honored to be mentioned in the MarketWatch article by Amy Hoak.  Other names of people quoted in the same article were Barry Habib (CEO of Mortgage Market Guide) and Mike Perry (IndyMac's chief executive), as well as a couple of other mortgage professionals.