Eyeing Warehouse Lending

San Diego-The future of the warehouse lending business would look pretty much like it has in the past, according to Wells Fargo's head of warehouse operations.

Speaking on a panel at the Mortgage Bankers Association's annual convention here, Ken Logan said he believes the future will be a private market with a limited role for entities associated with the government.

The problems that arouse in warehouse lending echoed many of the same issues involved in the mortgage lending business in general, including a lowering of lending standards and inadequate pricing for the risk.

Warehouse lending, Mr. Logan said, has to remain a business that is attractive for the banks to be in. He hopes the issues that drove the risk/return ratio out of whack stay away in the future.

Lawrence Huff, the co-chief executive of Optimal Blue, advised mortgage bankers to manage their warehouse relationships in a way so that the lender wants to stay in the game. Mortgage bankers need to stop worrying and managing the small part of the business that needs exceptions, and concentrate on implementing automation and managing the 95% of loans that go through cleanly.

Matthew Pineda, the president of Castle & Cooke Mortgage, has put what Mr. Huff said into practice. He said he was not comfortable with the future of warehouse lending, so what he wants is to keep his lenders happy. This includes turning his line as many times as possible and trying not to get to full capacity.

The chief operating officer of 1st Advantage Mortgage, Michael Greco, said he was not confident in the ability of politicians and regulators to come up with a solution. The mortgage banking community needs to be proactive and educate them on what warehouse banking is and how important it is to the nation's economic recovery.

As for seeking more capacity, Mr. Pineda suggested looking at the firms you are selling whole loans to on a correspondent basis. These investors are sources for a new line of credit, because they are already familiar with the quality of your paper. However, he cautioned about doing business with them if they put conditions on the line on where the loans are sold.

Mr. Logan is seeing more warehouse players adding facilities, where as one year ago, only three were active.

He suggested mortgage bankers check back in on lenders they contacted before.

In establishing a new relationship, Mr. Greco said the terms are important to make sure it is the right fit. This includes does the capacity being provided make sense? Does the lender restrict what can be originated? How much documentation is required? And can their technology handle your business?

Mr. Logan noted people underestimate the depth of the mortgage banker/warehouse lender relationship and its effect on one's business. He said the mortgage banker needs to ask questions to make sure the people at the warehouse provider are ones you are comfortable doing business with. He told the mortgage bankers if the warehouse lender's strategy is not consistent with your own, don't take the line just because it is being offered. Mr. Logan added, that just eight or nine months ago, he would have said something different to that last statement.

Technology was one of the items the panelists emphasized. Mr. Pineda said, "The only way you can speed up your turn times is to be paperless." Merely imaging a file after closing is not being paperless and not speeding up the process.

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