Colonial's failure could make mortgages more scarce

[dkf]

Colonial BancGroup controls 25% of all warehouse-lending funds. If that money disappears, mortgage loans will be even harder to get.


NEW YORK (CNNMoney.com) -- The collapse of Colonial BancGroup poses another hazard to the still-shaky housing market: Mortgages could become even harder to get.

The Southern regional bank, based in Montgomery, Ala., was the largest remaining player in warehouse lending, which provides short-term financing to independent mortgage bankers. At one time, these mortgage bankers originated half of all U.S. home loans using these funds.

Today, the warehouse lending market is decimated. In 2007 it was worth an estimated $200 billion; now there is just $25 billion available -- 25% of which belongs to Colonial. With Colonial's failure, those funds could become even more scarce.

"It's like if they shut down half the concession stands at the baseball game," said Scott Stern, CEO of the Lenders One mortgage bankers group in St. Louis. "It means the guy who's last in line is going to have to wait a lot longer to get a hot dog, and in this market who knows what the price is going to be when he gets there?"

http://money.cnn.com/2009/08/14/news/companies/colonial_bank_fallout/?postversion=2009081414

[Snarkoleptic]

1. Many wholesale lenders experienced serious capacity issues even before the Colonial failure.

I've been working on a refinance for a borrower that was issued a "clear to close" by underwriting on July 29th.
The VP of funding called to tell me that they're out of money and can't issue loan documents until August 27th!
I nearly fell out of my chair as he explained (or offered the excuse) that Citi has been dragging their feet in buying the loans from them and the result is diminished warehouse capacity. Apparently Citi used to take 3-4 days to purchase such loans, but now is taking around 3-weeks.

The big banks are trying to squeeze all competition out of the market. Many have doubled their loan fees as they continue to gain market share.

[dkf]

2. A friend says the appraisers used to get $500 a house but now

are getting $200 a house and the bank is charging borrowers $700 and keeping the extra $500 themselves.

I'm actually amazed this warehouse arrangement exists. I would have thought the banks wanted this all to themselves ages ago.