Citi wholesale eliminates popular stated and 40-year products
Hat tip to Chris at LO Survival Guide for this one.
The mortgage market continues to tighten, with more non-traditional mortgage products starting to exit the market. Today, CitiMortgage announced the end of it’s stated income (SIVA and SISA) and 40-year loan products, the 40-year interest only mortgage and the 40-year ARM product (which consists of a short-term fixed period followed by an adjustable rate period for the duration of the loan).
Some items of note here:
The mortgages being eliminated are the stated income and stated income, stated asset loan types. Often referred to as liar loans, these perform notoriously poorly compared to full income documentation loans (for obvious reasons). Many banks started to reduce the impact of stated income by dialing down the loan to property value (LTV) percentages associated for those loans - now they are eliminating them all together.
The 40-year mortgages being eliminated are also of note. Using a 40-year amortization was often a trick used to qualify a borrower who could not qualify under the traditional 30-year term. The extra 10 years of repayment reduced the monthly payment of the mortgage and allowed more people to qualify. This would indicate that borrowers that took 40-year mortgages were stretched on their repayment ability and therefore more likely to default.
It makes perfect sense that Citi eliminated these products (the only question is how did they survive so long). If you can’t qualify for a traditional 30-year product and have to use the extended repayment period to afford the loan there is a high probability that you shouldn’t be in the loan in the first place.
For the stated income loans it’s amazing that these were still available.
From CitiMortgage:
For all Agency Alt-A (SIVA and SISA), 40-year Fixed I/O, 40-year LIBOR ARM products - these are being discontinued. Any loans that you have under these programs must be REGISTERED BY 9-12-08, LOCKED BY 9-30-08, and FUNDED BY 10-31-08.
The company will continue to allow asset backed (i.e. stated income) loans in its portfolio, but I imagine that this will be a nearly unsellable product with rates and guidelines that make it unavailable to the many people who would want to use it.