The line of credit is paid down when the loan is sold to an investor. This critical link between the originator and the ultimate purchaser of the mortgage loan has been a major the puzzle for the industry for many years and is now reaching crisis level as more and more warehouse lenders exit the market. For the non-institutional financial entity such as mortgage bankers, that do not capture deposits as a main source of funds, the need for warehouse lines of credit has been crucial in the origination, closing and ultimate sale of loans into the secondary market.

According to the MBA, in 2007 approximately 40 to 45% of all home loans were funded by mortgage bankers, which therefore required warehouse lines of credit to close most of those loans. It is also estimates that over 55% of all FHA loans are originated by mortgage bankers. Since the financial crisis began in 2007, the number of actual warehouse lenders has dramatically decreased, therefore causing a bottleneck and a strain on the overall origination process. The liquidity of loans funneling their way through the process has been tightened and left as a challenge to the country’s financial system, mortgage bankers and ultimately the consumer.

Click here to continue to read the entire article written by Chuck.