Liquidity issue gaining more and more traction! Possible relief in sight. Industry media is really starting the carry the ball on the topic (but only after we mentioned it first!). Here is the first article from the MBA Newslink:”MBA Proposes Backstop for Warehouse Lines”:
”[John Johnson, CMB, president of MortgageAmerica Inc., an independent mortgage banker in Birmingham, Ala., and head of the Mortgage Bankers Association's warehouse lending committee] and MBA staff met with the Treasury Department last Thursday to propose a $30 billion backstop to guarantee warehouse lines of credit and “liquefy the business that existing warehouse lenders are doing.” TALF could be used in that source of funds to assist in liquefying the market, he said. On Friday, Johnson and MBA met with Federal Reserve staff.
“Johnson said federal government funds would not provide warehouse lenders with a “bailour but instead would create an interim mechanism to begin manufacturing liquidity back into the mortgage market.
“This would make it a government-guaranteed security. It would liquefy and bring new participants to the market and free up capital for the existing warehouse lender,” Johnson said.”
Read the full article “MBA Proposes Backstop for Warehouse Lines.” From National Mortgage News, “What We’re Hearing” by Paul Muolo for the paragraph that begins with:
THIS JUST IN: The Government National Mortgage Association might be open to providing (in some manner) warehouse financing to non-depository mortgage banking firms, helping alleviate the credit crisis in that sector. GNMA isn’t ready to talk about it but there are rumblings out there. Meanwhile, some regional banks are warming up to the idea of becoming warehouse providers, one investment banker told us. These banks understand that the profit opportunities in warehouse could be quite good. “I know one Illinois bank that’s looking at it but they only want to lend in their state,” said a source. “They’re telling me: ‘If it’s not in my backyard I don’t want to do it.’”
On the other hand, The Christian Science Monitor also published an article, “As big banks falter, community banks do fine“, which points out that smaller banks did not make the same mistakes that larger banks did, such as investing in risky mortgage backed securities or complex derivatives, but instead kept their assets local. As such, these banks are doing well and are anxious to separate themselves from the big banks that are creating such a negative perspective of the banking industry.
“While they account for less than 10 percent of America’s total banking assets, their traditional, values-based approach contains plenty of lessons for their larger Wall Street counterparts, some analysts say. Some also question the wisdom of allowing a few big banks to control large percentages of the US banking sector.
“Mr. Potter must be spinning somewhere in his celluloid grave,” says John Steele Gordon, a business and financial historian in North Salem, N.Y. “The community banks are doing well because they were willing to adhere to sound banking principles. They didn’t get caught up in the Wall Street craze and were less driven to keep those quarterly earnings going up and up and up.”
“Yet the community banks are interested in making a profit. Like the Connecticut River Community Bank, which had its best year ever in 2008, most do it in the traditional way: They focus on their “net interest margin” – the difference between the interest earned from loans and investments they make, and the money paid out to depositors.
“But there’s another component as well, says William Attridge, president of the Wethersfield, Conn.-based bank: Most community bankers know their customers.
“We’re lending to small businesses, and in small businesses the individual is a significant part of that,” he says. “There’s a character component: That means we might make loans that possibly someone else wouldn’t if they just looked at the financials, because we know the individual well and what their resources and talents are. On the other hand, there are probably some [loans] that look good on paper that we wouldn’t make.”
We will keep following the growing coverage on this issue and keep you posted on our efforts to keep bringing smart solutions to the mortgage industry crisis to light.
