Cheap Prices on Loans to Riskier Borrowers Seen Harming Industry

By Hornblass, Jonathan S. | American Banker, May 3, 1995 | Go to article overview

Cheap Prices on Loans to Riskier Borrowers Seen Harming Industry


Hornblass, Jonathan S., American Banker


Several newer originators of home loans to borrowers with marred credit histories are being accused by veteran lenders of pricing too aggressively.

They complain that the pricing practices are potentially destructive to the industry.

"It is really difficult for some people to understand that they are really overly aggressive on price and not pricing for risk," said a chief executive at a noted B-to-D lender based in Florida.

Since the home loan refinancing boom ended last year, scores of mortgage banks that had primarily originated agency-quality first mortgages have flooded the B-to-D loan market. And their inexperience is showing, say veteran lenders.

Capstead Inc., Dallas, is said to be one lender with a hard- nosed pricing strategy in this market. A rival executive said Capstead's prices for B and C loans were better than his A rates. Some lenders have also singled out CWM Holdings, Pasadena, Calif. CWM, the former Countrywide conduit, is now an independent company that is managed by Countrywide for a fee. Countrywide owns about 3% of CWM.

"I can understand CWM's desire to get into" home equity lending, said a Los Angeles-based chief executive officer of a B-to-D lender. "But I would suggest to you that a little bit of caution is advised."

He said the mind-set of companies like CWM must be changed in order to make B-to-D loans effectively.

"There is much to be learned from those that are in the business already," he said, citing the ability to price for risk as one vital skill.

CWM "has done a lot of deals that they historically wouldn't touch," said another chief executive, whose company is based in Washington State. …

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