Ruth Lee
(continued from a previous post here)
Lenders that utilize warehouse lines of credit originate approximately 41 percent of all U.S. residential mortgage loan originations and nearly 55 percent of FHA loans. A gap of $32B in warehouse lending begs the question: who will fund those loans? This figure already takes into account that small community banks and credit unions will absorb 20 percent of originations. Predictably, the largest lenders will definitely attract more market share; however, independent mortgage bankers will be forced to ration lending.
This is unfortunate both for the industry and for borrowers since IMBs service their communities in ways often unavailable to the large lenders. Emerging markets and complex borrowers will be forced to pay a premium or remain underserved. Our industry’s reputation will again be sullied in the eyes of consumer watchdogs and the media that argue their case.
Ironically, at a time when the mortgage industry is originating a high volume of low risk product, the scarcity of bridge financing is driving up costs for non-depository lenders and borrowers. In April, at the MBA Secondary Conference, it was not uncommon to overhear lenders in active, borderline desperate, renewal negotiations of their warehouse line at previously unheard of terms. Often, those who succeeded found their terms defined as note rate plus 300 bps with a penalty of 50 bps for every dollar not utilized at least once within a 30 day timeframe up to the line limit. Whereas nonrefundable application fees in the amount of $1,500 have been the norm, according to our intelligence some lines have been trending upwards to around $5,000, which correspondents have been paying in the hope of getting a line to meet rising origination demand.
Part three on Wednesday!