Mortgage Lending in Crisis: Insufficient Warehouse Lines Affect Lenders

As demand for mortgages increase, many lenders are finding that they are unable to fund loans or are extremely slow in funding as their warehouse lines are shrinking or disappearing altogether. This means that as the economy struggles to recover, homeowners that have the biggest need to refinance are finding their loans are not funding or are funding significantly later than they had expected. These funding delays can mean increased rate lock fees for consumers as lenders much extend their locks and many times requires borrowers to resign loan docs when their loans do not fund on time.

These factors can mean significant harm to homeowners and the economy if predicted future shortfalls in warehouse lines prove to be true.

Warehouse Lending Basics from WarehouseLendingProject.com:

* Warehouse lending is a critical link in the housing finance chain, providing short-term funding for loans that are eventually sold into the secondary market to Fannie Mae, Freddie Mac and Ginnie Mae.

* Lenders that utilize warehouse lines of credit account for approximately 41% of all residential mortgage loans in the U.S., and nearly 55% of popular FHA loans.

* Estimates are that since 2006 warehouse lending capacity available to the industry has declined by nearly 90% to approximately $25 billion today.

* Based upon newly revised projections of 2009 lending volume there could be a $630 billion shortfall in home mortgage availability caused by a lack of warehouse lending capacity.

* Unless federal policymakers promptly address the issue, borrowers seeking to take advantage of today’s low rates will face rising interest rates and reduced credit access.

Estimated Warehouse Lending Gap

1. Estimated 2009 Home Mortgage Originations    $2.8 trillion
   

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2. Mortgage Banker Market Share    41%
   

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3. Total mortgage banker originations (line 1* line 2)    $1.15 trillion
   

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4. Estimated current WH lines from major lenders     $25 billion
   

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5. Average sustainable long-term line usage @ 70% (.7 * line 4)    $18 billion
   

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6. Estimated maximum funding capacity from existing warehouse lines (line 5 * 20)    $360 billion
   

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7. Estimated funding gap due to reduced warehouse line capacity        (line 3 – line 6)    $788 billion
   

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8. Adjusted funding gap (.8* line 6)†    $630 billion
   

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9. Estimated shortfall in warehouse lending capacity (line 7/20)†   $32 billion

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† This is a baseline estimate of the additional warehouse line capacity (line 9) that would be needed to accommodate projected funding gap in 2009 (line 8).  Higher loan origination volume in 2009 and/or increased mortgage banker market share as a result of increased use of FHA loans would produce a larger gap/need.