Despite rumors that Wells Fargo and GMAC’s ResCap are getting back into warehouse lending, independent reverse mortgage bankers’ resources are being pushed to the limit and loans are taking longer to close than usual due to a lack of funding from a shrinking number of warehouse lenders, RMD’s sources say.
Recent estimates from The Warehouse Lending Project indicate that the number of active warehouse lenders declined from a peak of more than 115 in 2005, to fewer than 30 today. The total aggregate capacity of warehouse lending credit has declined to about $25 billion, down nearly 90% from the level reported in 2007.
Warehouse lines provide reverse mortgage lenders with advantages and risks that companies don’t have when they broker loans through wholesale lenders. One of those advantages is that it offers you a level of control that brokers can’t provide.
“We have a better level of control of the service that we can deliver to the loan officer and their client, compared to having a wholesale lender underwrite and fund the loan,” said Torrey Larsen, Chief Executive Officer of Security One Lending. He added that having that control can be a double edged sword because when volume increases and you lack the necessary underwriting support you see longer turn times for your customers.
Since only a few national warehouse providers remain, many lenders are turning to midsize and local banks as a new source of funding. Larsen said that he has been in discussion with several midsized banks who see an opportunity to earn a nice yield for the bank, above and beyond their cost of deposits, by offering warehouse lines.
“We are working with several of them on not only their understanding of reverse mortgages but also understanding warehousing in general,” said Larsen. He believes that independent mortgage bankers like themselves can really identify another source of funding that they never had to rely on in the past by reaching out to this bank profile.
Warehouse lending can be a very profitable business when run correctly. Providing lines for reverse mortgages also have some advantages over traditional “forward” loans.
For starters, there is less risk selling reverse mortgages compared to the forward business because HECMs aren’t credit driven. “Since it’s collateral underwritten and not credit underwritten like forward loans, there aren’t as many problems that can spring up in post closing,” said Marc Helm, COO of Reverse Mortgage Solutions.
The fact that almost all reverse mortgages are refis should also make HECMs attractive to warehouse providers. “Since the borrower is signing all the docs at closing, you already have the docs needed to get the submission process started with end investors (ie. Fannie Mae) before the loan is funded.” By starting this process early, reverse mortgage lenders are able to get loans off of their warehouse line fairly quickly compared to the “forward” business said Helm.
Warehouse providers typically charge lenders a per file fee which sometimes includes both an in and out fee so the more units you fund the more fee income a provider earns.
There continues to be talk of some major banks getting into warehouse lending, but that hasn’t calmed the fears of lenders having warehouse lines pulled. Several executives at reverse mortgage lenders told RMD that, “Losing our warehouse lines is the single biggest item that keeps me up at night.”
