Blog View: Speaking Up On Warehouse Lending

If you listen to all of the noise that comes from Washington, there is a certain phrase that isn't receiving that much microphone time: warehouse lending. Kudos are in order to the Mortgage Bankers Association (MBA) for trying to get the D.C. crowd to hear that phrase – but more needs to be done.

Last week, the MBA sent letters to the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Office of Thrift Supervision to improve risk-based capital rules that would, in turn, improve the availability of warehouse lines of credit.

‘The current turmoil in the capital and credit markets has resulted in a significant, yet avoidable, 'bottleneck' in the funding channels for real estate finance,’ the MBA said in its letter, which has been made public. ‘The MBA believes this problem stems, in part, because the loans from banks to independent mortgage lenders to fund residential mortgages incur a significantly higher capital requirement than the underlying mortgages themselves.’

Earlier in March, the MBA made a proposal to the Fed and Treasury Department in which warehouse lenders would pay a guarantee fee that would go to the investors in this particular line of credit. Concurrently, one of the government-sponsored enterprises would invest in bonds while providing warehouse line funds. The price tag for this proposal: $30 billion.

Strangely, I didn't recall hearing about responses from any federal agency on these requests and proposals. I did a Google search for ‘warehouse lending’ and wound up with a lot of articles about warehouses – not the financial types, but the ones where you store merchandise. I found nothing relating to government officials offering solutions on the warehouse-lending crisis.

The silence from Washington is atrocious, especially when held up against the noisy departures of National City Corp. and Guaranty Bank of Dallas from the warehouse sector. The MBA reports that the number of warehouse lenders fell from a 2007 level of 90 to a current figure that is defined as ‘less than a dozen.’ The MBA also notes that the volume of warehouse lending recorded in 2008 was plunged 85% from the previous year.

The warehouse woes were a long time in the making – Secondary Marketing Executive detailed the problems back in June 2007 with a report on how warehouse lenders were coping with the implosion of the subprime market. At the time, no solutions were being put forward in Washington to address that situation because the government was still in a denial mode about the nation's financial health.

Fast-forward to March 2009, and things haven't changed: No solutions are being put forward in Washington to address the issue. Outside of the MBA, no one is talking about the warehouse sector as part of the broader conversation on resurrecting the flatlined economy.

Needless to say, the powers in Washington need to hear about warehouse lending – with more volume, frequency and urgency. The MBA started the charge, and it is incumbent upon other financial trade groups and individual companies – particularly the independent lenders who rely heavily on warehouse lines for their livelihoods – to make sure that the issue is addressed. Let's ensure the subject is heard – in this case, silence is not golden.

– Phil Hall, editor, Secondary Marketing Executive.

(Please address all comments regarding this opinion column to hallp@sme-online.com.)

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