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Lack of Warehouse Funding Hurts Reverse Mortgage Sector

Growth in the reverse mortgage sector requires warehouse funding, which has gone virtually AWOL during the past 15 months of worldwide economic contraction. Warehouse lenders provide liquidity by allowing lenders to temporarily fund mortgages at the closing table. But, estimates indicate a severe drop in the number of warehouse lines – down from nearly 115 at its peak in 2005 to less than 30.

“Two years ago there were warehouse lenders galore and now there are very few,” laments Michael Wallace, branch manager, Upstate Capital, East Syracuse, N.Y. “The [providers] that are out there are either cutting back on their lines or requiring very large minimums,” according to Wallace, who says he is “going out to local banks and trying to educate them on the reverse mortgage so they can provide [this] funding.”

Wallace – whose company wrote 700 reverse loans last year and is averaging about 80/month this year – said he wants part of the federal economic stimulus package to be directed to providing this warehouse funding. “Congress should say to HUD and Fannie Mae ‘start providing these lines’ to guys like us who want to become a Full Eagle.”

Even established reverse mortgage lenders like JB Nutter have had problems with its warehouse providers.  Due to capacity “issues”, the 2nd largest wholesale reverse mortgage lender was forced to suspend new submissions from brokers in February.  The company started accepting new submissions from certain customers but wouldn’t comment on when things would be back to normal.  

Looking to address the problem, last week the Mortgage Bankers Association came out in favor of federal “steps to help maintain existing lines of warehouse credit and creating new warehouse lending by providing a short-term federal guarantee of warehouse lines that are collateralized by Fannie Mae, Freddie Mac, FHA, VA and RHS [Rural Housing Services]-eligible mortgages.”

Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at [email protected]

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