(Continued from a previous post here)
A commercial revolving line of credit is not a complex or arcane financial instrument. The concern of most potential warehouse lenders is how to handle unfamiliar collateral – the mortgage. Facing similar quandaries of limited expertise and unfamiliar infrastructure, other industries have embraced the outsourced services model with notable success, accelerating and/or streamlining the efficiency of new business endeavors.
Community banks themselves are not strangers to outsourcing key elements of their business services and operations ranging from trust administration and operations, to online bill payment, check processing and imaging, to telecommunications expense management. Outsourcing has served community banking well, allowing them to compete more effectively against big banks, and democratizing sophisticated business lending and advisory services to firms focused on serving their local economies.
Today, community banks can outsource a warehouse lending service platform that includes collateral management, line reconciliation and technology infrastructure, providing local institutions with the same operational support as any warehouse line lender. Choosing a well equipped, dynamic outsourced warehouse lending platform and service provider delivers a variable-cost service to micro warehouse lending with specific focus on the needs of local banks.
In the bigger picture, the government could further increase liquidity by allowing TARP funds (Troubled Asset Relief Program) to create a warehouse line of credit, backed by federal funds. This is a simple way to increase liquidity—Fannie Mae and Freddie Mac are being bombarded by customers trying to become direct sellers. These sellers know that selling directly to FNMA/FHLMC will cut down purchase time lines and allow them to stretch their funds further by turning the lines they have faster and more often. The use of TARP funds to bolster warehouse lending would be a great solution if lenders could get access. Additionally, the funds would earn interest and replenish itself every 15-30 days.
Final Segment Tomorrow…