(Conclusion from a previous post here)
Instead of allocating TARP funds to larger lending institutions that are not necessarily motivated to extend warehouse lending lines of credit as evidenced by the closure of so many within the last year, TARP allocated funds could be managed in a way that would allow middle market and small lenders access to funds to continue doing business. This aid would serve to allow these lenders to support and bolster lending within their local communities. The federal government could earmark TARP funds to create a nationally subsidized warehouse line provider or they could allocate these funds to a few different regional banks with the express purpose of supporting warehouse lending for independent mortgage bankers.
The idea is a simple one born of common sense. 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. The risk exposure would be extremely limited, in that the line is a short-term extension of credit that will replenish itself every 15-30 days as loans are sold to the purchasing investor. Further, traditional warehouse lending fees and interest would be charged to the participating lenders for their use of the funds, thereby generating income for other economic stimulus programs.