Mortgage Industry News

Mary Kladde

Instead of continuing to dole out TARP funds to financial institutions only interested in self preservation or purchasing other like entities, why not use the funds as intended by actually providing a credit facility for the primary mortgage market?   Today there are less than 5 warehouse lenders I can name still taking applications.  With the loss of industry titans, like First Collateral, Countrywide, National City, WAMU etc… the need hasn’t gone away for warehouse capacity, but the options have.

We have seen a virtual blank check to the world’s largest lending institutions in the secondary, but a complete neglect of role of the primary in this recovery.  Lofty goals to stimulate the housing market through rock-bottom rates cannot work without the concurrent support for those originating these loans at the borrower level.   If there is no money to fund the loan after closing, well, that makes a refinance into a better rate very difficult.  It makes selling your home on a short sale to avoid foreclosure more of an endurance race than a solution… hoping that even worthy borrowers will be able to finalize the purchase on time.

Since the state of our overall economy and the subsequent agreement of the majority of our elected officials has determined it necessary to insert our government into our financial markets, why don’t “THEY” go a step further, get a little closer to the frontline, and do it right?

I believe all of us in the industry (right at this moment) are experiencing a quasi mini boom due to the incredibly low interest rates currently being offered.  Potential borrowers are clamoring for the opportunity to lower their payments.  And these borrowers are not the troubled “subprimers,” they are the “backbone,” reliable homeowners that carry our economy and have FICO scores over 680.

The problem at the moment is that lenders can’t meet the business demand.  Not because they don’t want to…. Believe me after the last year and the purging that the industry has gone through, the good lenders hanging on by their fingernails want to service their customers and any new potential customers that are available in any way the can.

The problem is they don’t have the cash or access to short term capital that is needed to fund all the loans.  Lenders can’t fund loans because Warehouse Line Lenders (lines of credit used by mortgage lenders for short term financing) are all but becoming extinct.  The few that are still actively functioning are operating very successfully, but they have reached maximum capacity while demand for their services continues to increase exponentially.

All this being said, I PROPOSE…..that instead of giving TARP funds to individual companies that can’t be controlled or take direction, the “FEDS”, under the direction of the FHFA or some other specially created managing body, should use the money to create a nationally subsidized Warehouse Line Provider.

Think of it…existing Correspondent mortgage lenders in good standing could immediately access the needed line extensions or obtain a new line to meet the demands of the market.  Then, only high quality, thoroughly audited and compliant loans would be funded through these lines.

Additionally, the pool of funds used to finance this warehouse line concept would continually turn and replenish itself every 15-30 days when the loans are sold to the purchasing investor.  And let me not forget to mention the fact that traditional warehouse lending fees and interest would be charged to the participating lenders for their use of the funds.  This would thereby generate income that could be used to subsidized other government programs.

Under this concept, Taxpayer money would cease to be spent never to be seen again by only but a few.  But instead…..would immediately show a return on investment and potentially lessen the overall burden by producing revenue for the government.

The idea is a simple one born of common sense.  The question is …..Can anyone in our government take up this simple common sense solution and champion it?

All this idea requires is a good management team that understands the intricacies of the mortgage industry and the overall loan process from beginning to end and MONEY.  I can supply the management team, but where the MONEY comes from is the question of the hour.

Considering the government’s willingness to give away money to losing enterprises for capitalization of some very nice golden parachutes over the last several months, THIS IDEA IS A REAL WINNER IN COMPARISON.   No golden parachute required.