Mortgage Industry News

The warehouse liquidity crisis is expanding and, according to this week’s story in MBA Newslink, starting to affect the broker to banker transition:

The mortgage industry faces a paradigm shift as warehouse lending dries up, wholesalers shut down and mortgage brokers turn into branches.

“This is an industry-wide problem,” said David Zugheri, co-founder of Envoy Mortgage, Houston. “Warehouse lending is down 90 percent by a number of participants, and the total amount of funding by 75 percent.”

Zugheri said a mortgage banker, once able to receive a $20 million line of capital with $1 million will likely receive nothing now with $5 million.

“We see that [problem] causing a lot of consolidation,” Zugheri said. “The bigger companies will get bigger, and the logical step for the smaller company will be to merge up into one that might make it.”

“We’re definitely seeing the move of branches to larger companies,” said Brian Lynch, president of Advantage Systems, Irvine, Calif. “The old deal of [mortgage] brokers becoming bankers–that is not happening because of this warehouse issue.”

Read the full article here. We have also explained how the warehouse liquidity crisis has affected this process on our website:

“Transitioning from “broker to banker” has always had an allure for those prepared to contend with added responsibilities, risks, and resource requirements. Tightening restrictions on brokers’ eligibility for opportunities to earn a profit and the massive exit of viable wholesale investors from the market has created an environment in which the move from “broker to banker” has become increasingly more attractive and possibly a necessity rather than a choice.”

Read more about the broker to banker transition and the nest steps for mortgage brokers in this economy, visit http://titanlenderscorp.com. Our warehouse lending solutions are keeping us busy with inquiries, but we promise more updates coming soon!

GATEWAY IS DOWN BUT BY NO MEANS OUT – Understanding the internal crisis for warehouse lenders

Ruth Lee

Quite often I have discussions with IMBs that are bewildered by the market for warehouse lending.  While profitable and low risk, they are astonished by the “shoulder shrug” the industry has given to warehouse capacity.  As I have mentioned on many occasions, survival in this market will not be by accident.

“Why can’t the current warehouse lenders just give me a larger line?  Why are they reducing my line commitment while increasing my approval requirements?”

Gateway is a prime example of the stresses that mortgage bankers are under.Gateway received a Cease and Desist order from the OTS addressing their need to maintain sufficient capital to support their current business channels and requiring a review of their “business plan.”  That doesn’t mean that Gateway is going away, but it does highlight that our warehouse lenders are under significant pressure to restrain growth.  While I wouldn’t be holding out grand hopes of quick approvals, with a $10K application fee, Gateway has an upfront reality check – literally.

It seems the mortgage industry is finally listening to reason. We recently suggested a common sense way to solve the liquidity crisis that would both assist the mortgage market in a much needed rebound and spend the taxpayers money in a way that will actually benefit them and provide returns down the road, unlike TARP funding, bailouts and the rest. In case you missed our previous posts on the topic, check out “Solving the Liquidity Issue“, “Creating Liquidity in the Primary Market“, and “Stimulus Package, TARP Allocation, Warehouse Line Lending.”

Basically we came out and explained how the liquidity issue could be addressed by developing a nationally subsidized warehouse line: “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. 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.”

Shortly afterwards, John Courson (MBA President and CEO)  testified to the House Finance Committee concerning the lack of access to Warehouse Line Lending for independent mortgage bankers. The idea is gaining traction and attention quickly. In a recent article, Inside Mortgage Finance reported this week that “Independent, non-bank home lenders who sell mortgages to Fannie Mae and Freddie Mac are looking to the GSEs for assistance in restoring liquidity to warehouse lines of credit. The mortgage banking industry and the warehouse lending sector are stepping up their lobbying efforts for action that will help improve warehouse lending capacity.”

In addition to the content we have been developing on this subject for the blog, we have also recently expanded our Warehouse Lending page on our website with more in-depth information on the workings of a solid warehouse lending operation.  We are looking forward to increasing the dialogue on smart solutions to the liquidity crisis at the Legislative Conference in Washington in a couple of months, and will keep covering this topic as it develops. I hope that this common sense approach gets the attention and traction it needs to actually be put into effect.