Mortgage Industry News

Warehouse line relief is coming in small waves, but only for the big banks, despite the fact that small and community banks (as we have consistently been pointing out) are the most stable, have greater trust from their customers and would benefit the most from a solution to the warehouse liquidity crisis!

Read our recent article in Mortgage Orb: “REQUIRED READING: How Independent Mortgage Bankers Can Survive The Warehouse Crisis“

Restoring the productivity of the U.S. mortgage marketplace is a critical, perhaps linchpin, element of both domestic and global economic recovery.Despite conditions ripe for our industry to experience resurgent and restorative volume, independent mortgage bankers have been restrained by a massive retreat from warehouse-line lending. (More)

Despite recent lobbying efforts and legislation, changes thus far have done nothing more than bolster the big banks whose stability has been questionable for some time. ”Big Bank” lenders saved by Troubled Asset Relief Program (TARP) allocations are gaining market share, which poses a dangerous imbalance to our recovery and long-term financial sustainability. From the MBA:

MBA Keeps Up Pressure on Warehouse Lending
Sorohan, Mike

More than 90 percent of warehouse lending capacity has disappeared in the past few years–an issue the Mortgage Bankers Association has made a priority in communication with policymakers and legislators.

Last week, MBA stepped up those efforts on two fronts. On Aug. 27, MBA and the Warehouse Lending Project, a coalition of independent mortgage bankers, met with Treasury Department officials to discuss how Fannie Mae, Freddie Mac and Ginnie Mae could help jumpstart warehouse lending activity.

Additionally, MBA last week coordinated with 17 state mortgage lending associations in a letter to the Senate, asking for their support in creating a solution that would open up warehouse lending channels.

The activity comes at a time when warehouse lending activity remains stagnant. Warehouse lending is a short-term revolving line of credit provided to a mortgage company to fund mortgages from the closing table to sale in the secondary market. It is the mechanism by which virtually all non-depository mortgage bankers fund loans that are eventually sold into the secondary market to Fannie Mae, Freddie Mac and Ginnie Mae. Today, loans originated through warehouse lines are responsible for at least 25 percent and as much as 40 percent of all residential mortgages, including more than half of all Federal Housing Administration loans.

MBA estimates that the number of active warehouse lenders declined from a peak of more than 115 in 2005, to fewer than 30 today?The total aggregate capacity of warehouse lending credit has declined to about $25 billion, down nearly 90 percent from the level reported in 2007. (more)

Here is more recent mortgage industry news concerning warehouse line lending which outlines the problems for smaller banks:

NATIONAL MORTGAGE NEWS: September 21, 2009Warehouse Squeeze Eases—but Only for Bigger Players

Banks are becoming somewhat more willing to provide warehouse lines to larger and medium-sized players, but it remains difficult to say when and if lines will be again be available for “mom and pop” mortgage brokers and other small originators that are among those hardest-pressed by regulation and the downturn.

For relatively small players, the warehouse lending situation has “gotten worse, not better,” according to Scott Stern, CEO of Lenders One, St. Louis, a cooperative aimed at giving its members the collective scale they need to compete in the market effectively.

As a result of this situation, brokers’ and smaller players’ main career alternatives on the origination side of the business in the near term may continue to be either collectives that aim to preserve their autonomy while supporting and sharing in the profits from their efforts (sometimes referred to as “branching” operations) or joining a lender’s staff.

Warehouse line availability today is “driven by net worth and line size,” Mr Stern said. “Unless you need a $100 million line and have a $10 million net worth, [warehouse lines] are getting harder and harder to find.” (more)

Small banks fail in big numbers

Left behind in finance revival
The Washington Times
By Patrice Hill 

While attention has focused on the improving fortunes of the nation’s largest banks and Wall Street firms, an increasing number of smaller banks have succumbed each week to a slow tidal wave of defaults on consumer and business loans. (more)

More updates soon…

The issues of primary market liquidity and the need for warehouse line options to stabilize the mortgage market and help small banks continue to thrive despite the downfall of larger institutions in continuing to be a hot topic this week. Here are some recent articles worth noting:

Warehouse Lenders Thinning Out (MBA Newslink, American Banker – Paul Muolo)

PNC Financial Services Group Inc. and Guaranty Bank, the largest warehouse lenders after Colonial Bancgroup, both have confirmed that their warehouse lending operations will be discontinued. Liquidity will be further constrained as a result, and nonbank lenders will find it tougher to arrange financing just as the spring home-buying season kicks off. The Mortgage Bankers Association is pushing for new warehouse lending policies, with MBA President and CEO John Courson requesting a reduction in capital risk weighting on warehouse loans from 100 percent as a way to prompt more banks to enter the sector.

The national media is also starting to pick up on some of the current mortage industry buzzwords and connecting the dots between the stimulus, bailouts, TARP funds and the continuing need for warehouse lending options:

“The financial bailout program remains politically unpopular and has been a drag on Obama’s new presidency, even though the plan began under his predecessor, President George W. Bush. The White House is aware of the nation’s bailout fatigue; hundreds of billions of taxpayer dollars have gone to prop up financial institutions that made poor decisions, while many others who have done no wrong have paid the price.”

Read the full article: “Bonus furor may prompt limits on AIG bailout money.” As always, we will keep posting as the dialogue increases about these important issues. More updates soon!

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.

Ruth Lee

When I heard this last nite, I almost choked on the modest yet well-rounded chicken dinner I made for my family.  How is this possible?  We give Goldman Sachs $10 BILLION in October… they make $2.3 BILLION in profit for the year… yet they only pay a TOTAL of $14 MILLION in taxes – or 1% tax rate.  Does anyone else feel like a big sucker?

————————————————————————————–

Goldman Sachs Group Inc., which got $10 billion and debt guarantees from the U.S. government in October, expects to pay $14 million in taxes worldwide for 2008 compared with $6 billion in 2007.

“The company’s effective income tax rate dropped to 1 percent from 34.1 percent, New York-based Goldman Sachs said today in a statement. The firm reported a $2.3 billion profit for the year after paying $10.9 billion in employee compensation and benefits.

“Goldman Sachs, which today reported its first quarterly loss since going public in 1999, lowered its rate with more tax credits as a percentage of earnings and because of “changes in geographic earnings mix,” the company said.

“The rate decline looks “a little extreme,” said Robert Willens, president and chief executive officer of tax and accounting advisory firm Robert Willens LLC.”

Read the full story: “Goldman Sachs’s Tax Rate Drops to 1%, or $14 Million”

Crooks and their crooked grins:

Ruth Lee

Today leading Congressional Dems join with a growing Rep consensus in questioning the authorization of the second half of the $700b to Paulsen without conditions that he use some or part of the money to shore up against foreclosures.   So far the bailout has been a lot of money (with only $20b of the initial $350b uncommitted) with little results.  I don’t think anyone was really thinking it would be a magic wand that would ratchet the economy out of a recession – but something – some result would have been dandy.  As of today, there has been no relief in credit markets… which are virtually frozen.   There has also been no relief in foreclosures…which are at the heart of losses for banks, exacerbated by the effect on property values.  It has been officially announced that the economy has been in recession since Dec 07 (quel surprise!).  And today we learned that last month our economy shed over half a million jobs…the most in over 30 years.

Continue reading »

LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY
TO PURCHASE MORTGAGE-RELATED ASSETS

Section 1. Short Title.
This Act may be cited as ____________________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;
(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;
(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and
(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Continue reading »

CNN Money ran an opinion piece this week called “Be ticked off – but get over it.” :

“Americans are very angry about the proposed bailout of the banking sector and Wall Street…and with good reason. There should be outrage. We should all be disgusted that the government was forced into this situation. I’m infuriated that it came to this.

Of course, we should cap executive pay, which was obscene at many financial firms, immediately. And we should make sure that the CEOs, CFOs and other big wigs that drove their companies into near ruin with overleveraged bets on risky mortgages should not get big severance packages.

But make no mistake. The alternative that many CNNMoney.com readers seem to be calling for – i.e. let all the banks and Wall Street crash and burn – is not viable. In fact, it’s incredibly short-sighted.

So once the blind rage subsides, people will hopefully take a long-hard look at what the government has proposed and come to the realization that doing nothing to rid the nation’s banks of all the poisonous mortgage assets on their balance sheets would be far far worse.”

Unfortunately, for the American taxpayer, getting mad is a realistic by-product Wall Street and banking firm’s of the excess and mismanagement of the mortgage market.

Continue reading »