It’s a good news/bad news story for reverse mortgage originators interested in securing warehouse funding in today’s market. According to two speakers at the recent National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting, who know the business well, if you’re not a large originator you’ll likely not be invited to the warehousing party.
“The problem for small companies,” says Gary Ort, executive vice-president, Texas Capital Bank, Dallas, is a lack of extensive funding. In 2005-2006, he says, “there were approximately $250 billion in warehouse capacity. By 2008, that had shrunk to $20 billion,” according to Ort, who says the market has “recovered somewhat; availability now is $75 billion.”
So, if you’ve got heft, you may like the warehouse landscape. “Big players, like Goldman and Citi,” Ort reports, “are looking for clients/lenders who need a $500 million warehouse facility and have the balance sheet to support that and production to turn that a couple of times a month.”
Posing an impediment to all lenders, according to David Keeney, managing director, Clayton, Shelton, Conn., is the skittishness felt by warehouse lenders. “It’s amazing to me the concerns and fear on the part of the credit department related to the counter-party on issues like headline risk,” Keeney remarks. “There is still a huge fear on the part of these lenders. They want robust QC compliance processes,” he explains, “not just a lot of small talk, they want to see it. A lot of the better capitalized companies have state-of-the-art loan processing systems. If you don’t have that automated environment – all the necessary fraud checks, compliance checks – it’s going to be extremely difficult to pass that part of the review.”
Keeney continues: “They want to see well-written workflow processes; policies and procedures.” That does not mean “just going into the HUD manual and Xeroxing the QC plan; that doesn’t work anymore,” according to Keeney. “They want to see adequate loan loss reserves and a culture of doing what’s best for the borrower…not ‘what’s my fee’? [They’re asking:] What’s the business plan? That’s the new world order,” declares Keeney.
Written by Neil Morse
