As one warehouse lender expands its territory, a warehouse lending consultant says banks are missing the boat by not jumping into the lucrative business.
Southwest Securities FSB said in a Sept. 4 statement that Rhonda Beck was hired to solicit warehouse lending business in the East and Midwest. Beck previously worked as a correspondent sales manager for CitiMortgage Inc. and as financial institutions director for IndyMac Bank.
Southwest said it provides residential funding capacity for U.S. mortgage bankers by taking a short-term ownership interest in the mortgages. The maximum purchases range from $2 million to $30 million per mortgage banker.
Warehouse lending consultant and MortgageDaily.com subscriber Barry Epstein recently commented that banks don’t understand how lucrative warehouse lending can be. He warned that mega-banks will control the market if mid-sized mortgage bankers can’t find funding for their originations.
“Bankers in this country need to know that this type of lending is very profitable, risk-mitigated and increases DDA and CRA credits, especially compared to any other type of commercial lending,” Epstein explained. “If structured as repurchase agreements, they are ‘off-balance sheet’ and do not affect capital ratios, and only require a 50 percent reserve versus 100 percent reserve for commercial loans.”
He noted that return on equity in the warehouse lending business exceeds 100 percent. Epstein pointed to risk-mitigated business from FHA Full Eagle mortgage bankers and recommended that warehouse lenders require mortgage bankers to deposit 5 percent of the lines as compensating balances and loss reserves.
(read clarification from Epstein on Oct. 30, 2009)
