Lending to the Mortgage Banking Industry

By McMahon, Michael P. | Journal of Commercial Lending, December 1992 | Go to article overview

Lending to the Mortgage Banking Industry


McMahon, Michael P., Journal of Commercial Lending


Commercial banks that lend to the mortgage banking industry usually have a specialized lending unit within their real estate or financial institutions divisions. These specialized units focus on providing mortgage warehouse lines of credit and other related credit products and on providing various mortgage custody and cash management products and services.

Role of the Mortgage Banker

Mortgage bankers, as distinct from mortgage brokers, are in the business of originating, processing, underwriting, closing, selling, and servicing mortgage loans. Mortgage brokers also originate and process mortgage loans, but they broker these loans and the associated servicing rights to mortgage bankers who complete the closing process.

Therefore, the primary difference between a mortgage banker and broker is servicing: The broker sells all loans on a servicing-released basis, while the banker generally retains the majority of the servicing rights on closed loans. Servicing is the principal reason the mortgage banker is in business. All the mortgage banker's activities are generally geared toward increasing the servicing portfolio to enhance the value of the company and stabilize long-term profitability.

Role of the Warehouse Lender

Mortgage bankers usually finance their mortgage origination activities by establishing revolving mortgage warehouse lines of credit with commercial banks. In addition, some companies augment their warehouse lines with loan repurchase facilities from mortgage security dealers, while also using early funding programs from Fannie Mae and Freddie Mac to increase inventory turnover and to reduce warehouse needs.

Two Approaches to Warehouse Lending

Commercial banks that provide mortgage warehouse lending can approach the business in two ways: as lenders and collateral custodians or as participants in a shared or syndicated credit in which one collateral custodian represents the bank group. One drawback of being a collateral custodian, however, should be noted: It requires significant investments in staff, systems, and space.

Processing Collateral

New lenders to the mortgage banking industry should consider initially participating in syndications to eliminate the substantial cost of establishing collateral processing units. In general, it is costly to process collateral for only a few warehouse lending relationships within a loan portfolio.

Underwriting Criteria

All warehouse lenders establish certain underwriting criteria that define their approaches to mortgage warehouse lending. For example, at First Interstate, all mortgage bankers must:

1. Reside in the region.

2. Have a minimum tangible net worth of $2 million.

3. Have a minimum servicing portfolio of $1 billion.

4. Have a strategic business plan that includes indications of growth in retained earnings and loan servicing.

5. Have the capability to produce monthly financial, production, and servicing reports and daily secondary marketing reports.

6. Have at least one other warehouse line of credit. This credit must be documented as a shared or syndicated credit with only one collateral custodian.

7. Have experienced, stable, and "known" management with adequate management depth.

While these factors are important, it should be emphasized that none of the first six can offset either unknown or questionable management.

When reviewing prospective clients' requests for warehouse lines of credit, the policy at First Interstate is to ask for:

* A minimum of three years' audited and company-prepared financial statements.

* Current and historical interim statements.

* Production volumes for each operating period.

* Audit letters from Fannie Mae, Freddie Mac, and Ginnie Mae.

* Servicing portfolio information regarding the types of loans serviced, geographical concentrations, recourse obligations, delinquency and foreclosure ratios, run-off rates, weighted-average coupon rates, principal and interest pass-through requirements, and a portfolio valuation (if available). …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Lending to the Mortgage Banking Industry
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.