Citi Home Equity Discontinues California Purchase Money 2nd Mortgages
Mortgage Lender Implode-O-Meter reported that Citi Home Equity is confirming a business change which withdraws them from the California purchase market - eliminating all purchase money second mortgages offered by the division of Citi. They have taken that business decision one step further by eliminating the Citi Home Equity Correspondent 2nd Mortgages altogether.
This is clearly in response to the declining housing market and the admission by one of the country’s largest mortgage lender that properties are likely to go down, not up, for the foreseeable future. While second mortgages have been greatly curtailed or eliminated in the refinance process purchase money seconds were still readily available for those with excellent credit. This business change signals that not only is credit and capacity an issue, but collateral is now heavily in play.
As we talked about with John Woodall, short sale expert, a 2nd position lien on purchase money is a non-recourse loan. This means that banks like Citi who specialize in 2nd mortgages in purchase situations have no additional recourse against the home owner except proceeds from the sale of the home if they need to foreclose. The elimination of the product points to the underlying degredation of collateral value and their excessive risk in losing most, if not all, of their loan against a property in the second position.
From the ML-Implode web site:
By now you’ve all heard Citi Home Equity will halt all ‘purchase’ money 2nds in the State of California. If you haven’t, please click here to read the full announcement.
Although we are sure individual AE’s are not authorized to speak for the entire company, one suggested in confidence that Citi was concerned with the “…performance issues with certain loans on the books.”
This may be the first sign of a true return to traditional purchase financing - you know, the one where you actually need to put money down to buy a house. It could be the beginning of the end of 100% home financing. And if this trend is followed by the rest of the large banks it could be the crack in the damn of home prices as down payment requirements for new home buyers will stagnate the market further and put downward pressure on home prices offered by motivated sellers.
The elimination of the correspondent channel also points to a turn away from third party originated loans due to quality issues and concerns about collateral and overall loan performance. Another step away from the diversified lending model of today, and another one towards the centralized retail model of tomorrow.
A lot put in to play by a seemingly innocuous statement from Citi. What do you think?