Equity Conversion Plan

Almost 9 months to the day I penned the most-visited, most-commented article in Blown Mortgage’s (brief) history; Dead Man Walking - Wholesale Lending is Marching Towards Extinction. With Wachovia’s announcement today that they are exiting the wholesale market I have to say that unfortunately I was probably right.

Since that time we’ve lost countless lenders who were big players in the wholesale arena and dozens more who continue to exist yet have shuttered their wholesale divisions. I’m on the road so I’ll have more to write; but this was a very big nail in the coffin. Brokers will go back to being the hard money conduit and small bank/niche lending conduits they have been historically and the bulk of all mortgage origination will be done by walking in through the front door of the biggest banks out there.

From Wachovia today (h/t JL):

Date: July 21, 2008
To: Wachovia Mortgage, FSB Brokers and AEs
From: Tim Wilson, Head of Loan Origination for Wachovia Mortgage
Subject: Wachovia Mortgage, FSB to Discontinue Lending through Third Party Brokers

As you know, the mortgage industry is experiencing a very challenging market environment.  Declining housing values, increased foreclosures, disappearing mortgage lenders, and a struggling secondary market are all symptoms of this market turmoil.

Wachovia Mortgage has evaluated its business model and decided to reposition its mortgage business.  Going forward, we will primarily focus on customers who have relationships with the bank, and who are located in geographies where Wachovia branches are located.

As a result of our new strategic focus, Wachovia Mortgage has decided to discontinue lending through third-party, or wholesale mortgage brokers.  This decision will be effective July 25, 2008, which will be the last date on which Wachovia Mortgage will accept loan applications from brokers.

This was a very difficult decision to make.  Out of respect for the valued relationships we have had with numerous mortgage brokers over many years, we wanted to make you aware of this change as soon as possible.

If you have any questions about this change, please feel free to contact your local Wachovia loan representative.  Thank you for your business.

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I’ve been reading a lot of articles on the Web these days with different groups blaming each other for the collapse of the housing market.  It’s annoying.  The housing collapse and credit crunch are too big and too wide-reaching for it just to be the fault of one group.  There was greed at all levels of what I’m terming the Pyramid of Greed.

From home owners maxing out their cash-out refis to real estate agents encouraging buyers to “stretch” to mortgage brokers manipulating W2’s the greed went up and up and up right to the office of the President.

So from now on, for those on this pyramid, please refrain from absolving yourself of any culpability in this mess.  If you’re on this pyramid you played a part.

Update: I updated the term “Mortgage brokers” to “Mortgage originators” and added a Power arrow to show how the power flowed through this pyramid. I’m not sold on the word Power though - if anyone has a better idea, let me know.

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