GSE Plan Would Encourage Warehouse Lines of Credit
Community banking advocates are praising government-sponsored enterprise (GSE) plans to support the extension of warehouse lending to small mortgage lenders. A source familiar with a plan forming at the GSEs told HousingWire a forthcoming program will “provide a certain measure of comfort” to warehouse lenders who provide lines of credit to smaller lenders to originate mortgages. The program will aim to encourage warehouse lenders to keep extending short-term credit to mortgage bankers by guaranteeing the GSEs' purchase of loans made through their lines of credit. If a mortgage banker were to go out of business with loans sitting in the warehouse lender's pipeline, Freddie Mac (FRE) or Fannie Mae (FNM) would still purchase the loans through a previous agreement with the warehouse lender, according to the source. This commitment would reduce the risk warehouse lenders face when extending short-term credit to smaller lenders. A Freddie Mac spokesperson confirmed an announcement on the program is forthcoming. A similar initiative being discussed may help speed up the processing of loans from originator to GSE and would increase the turnover of funds for small lenders. Glen Corso, an industry insider familiar with the plan and co-founder of community bank advocacy group Community Mortgage Banking Project, said the GSEs are finalizing a program that would extend an early purchase commitment for loans that meet a specific template. The warehouse lender would be responsible for ensuring the loans meet the pre-approval requirements, but once the commitment is extended, the warehouse bank may not have to hold as much, or possibly any, capital against the loan covered by the commitment, Corso said. A community bank “makes a loan to the Smiths for $200,000. If that loan has to sit on the books of the community bank for a month before it is purchase by Fannie or Freddie, the $200,000 is tied up for a month,” he said. “If Fannie or Freddie issues an early purchase commitment within one week after the loan is made, the community bank can re-lend that $200,000 that much more quickly.” Scott Stern, who heads up another community bank advocacy group, the Community Mortgage Lenders of America, said such a program would fill a capital need in the industry. “Community-based mortgage lenders have pushed hard for action to increase the flow of capital to the retail level. Though the federal government has maintained low interest rates and purchased significant volumes of mortgage backed securities, the full impact has not been felt by consumers,” he said in a statement. Stern, who also serves as CEO of the Lenders One mortgage cooperative, indicated community-based bankers make 46% of mortgages in the country. “Mortgage capital has been ‘bottlenecked,’ resulting in higher costs to consumers and inability of community mortgage lenders to access adequate capital to fund retail mortgages,” Stern added. He said plans at Fannie Mae to establish this program would reduce the cost of mortgage credit to borrowers. Representatives at Fannie Mae could not be reached for comment. HousingWire reported in September Fannie Mae president and CEO Michael Williams announced the GSE was taking steps to supply faster payment for mortgages purchases. “We’re providing faster funding to lenders so that they get cash immediately after closing to continue funding loans,” Williams said in a speech to the Exchequer Club in September. Write to Austin Kilgore.