As Refis Swell, Is There Enough Warehouse Credit?

The volume of warehouse credit providers has fallen recently from 30 to about 10, according to an article featured last week by American Banker, raising the question as to whether there is enough warehouse capacity to handle a refinance boom that has clearly surfaced in the past week.

The rise in mortgage loan application volume for the week ending Dec. 12 showed a particular emphasis on refinance activity, according to the weekly application survey released last week by the Mortgage Bankers Association. The MBA’s refi index increased 5.6 percent from the previous week, bringing the refinance share of activity to 76.9 percent of total applications, compared with 74.3 percent the previous week.

An independent survey conducted by online mortgage resource Zillow Mortgage Marketplace last week also found that the volume of personal refinance loan quotes spiked 230 percent, accounting for more than half of all requests submitted in the first half of December.

The recent refinancing boom, coupled with low warehouse capacity, prompted the MBA to form a task force and to request a meeting with Treasury Department secretary Henry Paulson (or his successor, depending on when the meeting is granted), according to coverage at American Banker. “I’m sure [Paulson] is not aware of the bridge between mortgage lending and warehouse,” said Larry Charbonneau, a mergers and acquisitions adviser leading the task force, according to the story.

When contacted, the MBA told HousingWire it could not comment on the task force’s progress or any details of its initiatives — but the fact that the association is looking for an audience with the Treasury is a telling enough sign that the group believes there is an issue here.

“[I'm] not sure what mortgage companies are going to do, but there is no way all these loans will get funded any time soon with no warehouse money,” said one of HW’s sources, a mortgage banker who spoke on condition of anonymity.

Another mortgage banker that asked not to be named in this story also confirmed his business is seeing dwindling warehouse supply, which, coupled with big demand equals “not a pretty picture.” His firm lends in more than 30 states across the nation. “We have seen warehouse lenders cutting back or getting out,” he said. “There is a huge demand for warehouse financing because we are in the midst of a refinance boom.”

Of course, available liquidity is only part of the picture; so, too, are underwriting criteria and whether or not the pace of refis can be sustained for more than a week or two. After all, the primary mortgage market in 2008 has had to adjust to wild rate swings — often within a single day — as well as a historic tightening up of qualification standards that has progressed unabated as this year has worn on. All of which means you can probably now add lending capacity to a growing pile of issues now confronting lenders in the primary markets.

Write to Diana Golobay at diana.golobay@housingwire.com.