JSmith43
Elite Member
- Joined
- May 5, 2003
- Professional Status
- Certified General Appraiser
- State
- California
Thanks, Scott & Roger-
I'm still a bit confused.
I went :Eyecrazy: looking at CW's "Matrix". I saw where "A-" was and then I saw "premier" (which looked like "A"). What I didn't see was part of the 80% that still is sub-prime, but better than "A-".
(Could that be what the grayed-out boxes with N/A mean? N/A= Not 'A', but better than 'A-' ).
Mabye it's like Big-Foot, the Loch Ness Monster, or Entrepreneurial Profit in the Cost Approach: Often talked about, seldom seen?
My view:
Quick and dirty background, for those that want/need perspective: In the beginning, the Earth's crust cooled.........I mean, there was classic A paper 28/36 debt ratios, stuff like that. Fannie and Freddie incorporated FICO scoring and other loan parameters into DU and LP, their respective desktop underwriting software. MB's could access DU & LP on line and run decisions for $$. Many investors via their originations through correspondent and wholesale accounts with MBs and within their own retail originators would accept loans based upon the automated underwriting findings.
Some of the big banks created special alliances with Freddie & Fannie, which allowed them to build a shell of custom UW decision rules over the LP and DU models. The rules they negotiated Might be more liberal, or they Might be more restrictive, depending upon the bargaining power.
No matter, eventually, the big market makers moved in with their own customized AU (automated underwriting) platforms. That's the point.
The sub-prime divisions have generally classified their products with similar grids, generally A,B,C,D,E,F...etc., but, basically, the letter rankings were relative to the sub-prime universe of products. Only recently, have AU been seriously introduced to sub prime World.
And LO's that work that side of the street know enough not to trust the so called approvals, since it was almost an industry standard to screw the MB last minute, who had to screw the customer (perhaps for the second time) at, near, or on the closing table.
A minus pricing in the broader arena (IMHO), actually relates A minus pricing to the A paper World. UW standards and pricing is generally much closer. When it first came out, it was generally a way for A paper lenders to get away from the pass/fail mentality, which meant the best rates offered had to consider the riskier end of a pretty broad spectrum of borrowers-all within A paper approval parameters. The lower tier of the A paper range was significantly more risky and that was holding down rate benefits for the less risky borrowing scenarios (the top half). A FICO of 620+ got you in the A paper game (potentially). With A minus loan decisioning, the 620 guy might take a small pricing hit, and a 600 FICO guy might have a shot at A paper rates minus, perhaps, one or two discount points.
As far as I know, Freddie was the first to promote the "almost A paper concept", which they rolled out in 2001-2002 by tweaking their decision rules within Loan Prospector (LP), their proprietary automated underwriting model.
The actual process was the LO (or processor) would run a loan scenario on LP and it it didn't get an approval in the findings, the LO then could run it again by clicking a check box allowing the A minus underwriting logic to kick in.
Sometimes, the loan scenario would approve and the findings would show the required documentation, how many push-ups the LO had to do and how much of a pricing hit the file would take.....generally 1/2 to 2 points. So, it wasn't always pretty, but it was a heck of a lot better to get an A minus approval than a sub prime approval of any grade I've seen.
If you'd like more of my off the cuff take, I'll have to put together a course!
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