We'd heard it was coming, and the announcement to brokers was very straightforward:
"Suntrust Wholesale is pulling out of the market for FHA loan originations for the next 20-60 days (likely around 30 days) while they evaluate a number of things. They will still offer FHA wholesale but are pricing themselves out of the market."
That "number of things" is broker performance, specifically with regard to delinquency and pull-through ratios for FHA-insured loans. The ranks of brokers approved to do business with SunTrust Mortgage stand to be thinned as the banking subsidiary reviews its relationships to minimize hedging losses and improve delivery within the business channel. "Wholesale FHA loans with Suntrust are their highest delinquency factor in the company," the notice goes on to read.
Based in Richmond, VA, SunTrust Mortgage, Inc. is owned by SunTrust Banks, Inc. (NYSE:STI) out of Atlanta, GA. In their 2008 4th Quarter Earnings Report, Chairman and CEO James M. Wells, III noted that "increased unemployment and continued declines in home values drove loan delinquencies significantly higher during the fourth quarter of 2008, resulting in higher than expected credit losses." Accounting for 29% of overall loan production, the Wholesale channel originated $2.1 billion for the quarter ending December 31, 2008. Nonperforming loans increased to 3.10% of total loans. HUD's Neighborhood Watch system reports 19,066 FHA loans were underwritten for sponsored entities (brokers and correspondents), and the default/claims rate for sponsored loans in the quarter had jumped to 3.31% from 2.35% in the previous three-month period.
What struck us most about the announcement was the candor with which brokers were addressed:
"They will no longer "TRAIN" brokers or tolerate submissions that are sub-par or with companies who cannot originate, [and] process a good loan.
We cannot afford to do business any other way. This applies to Suntrust, Wells Fargo or any other lender. We need to keep the lenders we have healthy, with lots of incentive to lend money... only then can we continue in this business that for some reason we all love. "
That's one helluva letter - no sugar-coating it, just straight-up this is how it is, and if you don't measure up you're gone. Why can't all lenders be up front and honest like that?
We will pull down this Suntrust FHA Wholesale Implode listing if and when they start accepting FHA again in the future.
They will no longer "TRAIN" brokers or tolerate submissions that are sub-par or with companies who cannot originate, [and] process a good loan.
Every remaining wholesale channel has had to evaluate their broker relationships. That they are ready to run leaner and concentrate good service on quality accounts will allow those same accounts to deliver better priced, quicker delivery deals, thus enabling them to increase their local market share. wow! the good old days are coming back! Permalink
These lenders need to also examine the financial health of their brokers. Many have issues that will not show up on a credit report such as liens, lawsuits, IRS. The more someone or a company is in financial problems the more likely they will commit fraud or take risks. Permalink
I am an avid lurker of this site but since I have first hand information I thought I would join and share. SunTrust is still accepting FHA loans and has every intention to do so as far as I know. We have temporarily priced ourselves out of the FHA business until we get our arms around some of the FHA quality issues being experienced by us and the industry as a whole. We have not stopped accepting loans or closed any departments related to the FHA business. The listing on the "implode-o-meter" might give an impression otherwise.
Unlike "passthrough" lenders that only care what happens during the first 120-180 days, SunTrust is a servicer that is stuck with the loan for its life. If there is a particular segment of loans that have an increasingly higher rate of delinquency it only makes sense to slow down the train for evaluation.
FHA financing will play a major role in any housing recovery and SunTrust will be there as long as it makes good business sense.
SunTrust was one of only 3 large lenders that actually saw an increase in mortgage loan business in 2008 and one of the last that still has "decentralized" operations. This alone should indicate the commitment to our business.
I am pleased to see the positive responses to the actions wholesale lenders are taking to insure quality business done with quality business partners can continue and be profitable for all while delivering value to the consumer. It proves that there is some merit to staying in the wholesale business and validates SunTrust's Motto.
You're Good, We're Good.........Together We're Great!
SunTrust A/E Permalink
I have news for all A/Es. You are the last employees in the food chain to know whats going on. If Suntrust is having problems, the last thing Sun Trust needs is wholesale resignations to exacerbate its already difficult situation. A clue to know if the rumors are true is pay attention to company memos from the CEOs denying the rumors or immediate press releases denying the rumors. Thats usually a pretty good indication the rumors are true.
Many direct and correspondant lenders are not following the rules regarding the employment of brokers and loan officers. HUD handbook 4060.1 specifically requires all brokers and loan officers to be W2ed and not 1099ed. Brokers and loan officers canot have conflicts of interest, such as the ability to sell real estate and do FHA loans.
My guess Sun Trust has ended up with many early payment defaults and HUD audited them and found a plethora of violations. I would bet many of the loans either in default or caught in the audit came from Wells Fargo.
Anyone doing FHA loans should be completely aware of HUD handbook 4155.1. I would bet most loan brokers are not even aware of this manual, much less have read it. The comments about training points to brokers and loan officers failing to read and take seriously HUD handbook 4155.1.
I would bet in the HUD audit, HUD required Sun Trust to indemnify HUD from losses on many loans. I bet HUD found loans brokered to Sun Trust from non-approved brokers and loan officers.
I believe, if the rumor is true, Sun Trust, in order to maintain its HUD stamp, suspended its FHA wholesale activity to show HUD they were serious about being in compliance and clean up its act. Depending on the number of loans HUD asked Sun Trust to indemnify, Sun Trust's financial stability may has been substantially compromised. I applaude Sun Trust for its actions. But make no mistake, Sun Trust probably had no choice as this type of action is pretty drastic.
Other direct and correspondant lenders: take heed to Sun Trust's actions. You may be next.
Brokers and loan officers: Start reading both HUD manuals and get into compliance or you may lose your rights to do FHA loans Permalink
If lenders don't want to "train" brokers, then websites--which all lenders use to process loans--should be as streamlined as possible, not one gigantic headache that requires half a dozen calls to technical support before a loan is successfully uploaded and underwriten by an AU engine. C'mon, people, this is the Information Age! Convoluted websites will no longer be tolerated by brokers! If you can't make your website user-friendly, you'll see a decline in users. To the simplest go the spoils. Permalink
The information age is broken and we have to start being educated on the rules of the game. The computer may, and I do emphasize may, have all the rules but getting the correct data into the databanks doesn't work when the loan officers are uneducated. Thats what the 4155.1 is for. Read it and digest it, then input your data. The country is tired of paying for our industry's education. Permalink
What does file data that comports with the 4155.1 have to do with "script debugging error" that I received on Wells Fargo's site, right after numerous other mechanical site errors that took two hours to resolve?
Programmers! Get with it! If you think website usability isn't a problem, why does this guy earn millions (and millions and millions) for his expertise?
Homepages are the most valuable real estate in the world. Millions of dollars are funneled through a space that's not even a square foot in size. Potential customers look at your company's online presence before doing any business with you. Complexity or confusion make people go away.
I was absolutely shocked to see this "knee jerk" reaction to what SunTrust is doing. SunTrust is totally committed to the Wholesale Lending side, unfortunately, as chas wrote, brokers originate loans that they do not care or worry about what happens to those loans 120 days down the road. Well let me inform everyone, SunTrust and other servicing Lenders HAVE to worry about this. Those brokers are not there when FHA / Fannie or others will not purchase the loans or make us purchase the loans back because of First payment defaults, early payoffs, etc. The greed in this industry has gotten to the point of extreme. No one wants to change the way they are doing business while business has changed drastically. Do brokers even realize the millions it cost the Lenders when locks do not pull through? Do they even care...Lenders are a viable part of their business! But why should they care? There is always another lender, right? I wouldn't bet on it in the next 6 months! Well I for one am sick of all of it! I feel we should go back to the old days where a broker had to close more than 3 loans to make a decent living. By the way, I will not even go into the horror of all the fraud that is out there today! Permalink
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Important: This company is on our list of lending operations that have "imploded". However, please note that "imploded" is a somewhat subjective and does not necessarily mean operations are ceased permanently: it can mean bankruptcy filing, temporary but open-ended halting of major operations, or "firesale" acquisition. All information here is provisional, and may contain inaccuracies (especially newer information). If you are planning on doing business with this company or any other one listed on this site, you should inquire with them directly on whether they can still meet your needs. Many are still operating in some capacity.