Friday, May 14, 2010

Credit Lines - Then & Now

What a difference a year makes! It was spring 2009, and rates had plunged to historic lows catching lenders by surprise. Lenders and investors alike were swamped with volume and had to face the dilemma of weighing whether this was just a volume spike or a sign of things to come which would require an increase in staffing. With investors desperate to keep overhead low, turn time delays led to warehouse line capacity issues for correspondents. There were a limited number of warehouse outlets and the ones that were available were all at their limits as well,(with no temporary or permanent increases in sight). A year ago the challenge of not being able to close loans due to capacity was wreaking havoc on many mortgage bankers. We all wish these were the issues of today. Too much business is always better than not enough!

It's spring of 2010, the Fed’s MBS purchase program has come to an end and rates are currently back near historic lows of ’09. Those concerns of a year ago are seemingly nonexistent. Investors have figured out the accurate staff-volume ratio and the increase in warehouse line providers is astonishing. I’m seeing both an increase in existing facilities as well as a number of new entries into the space, bringing much needed liquidity back into the market.

Small community banks have been entering the space with targeted guidelines and a straight forward approach to credit approval. The larger line providers are willing to increase capacity, but with a caveat that the lines must be used. Non-usages fees are not just a line in a contract anymore.

There’s credit to be had, but you’ll be paying for it - whether or not you use it. Be careful what you wish for. If you apply for a line, or a line increase, make sure you have the volume to support it. In this market having too much capacity can be as costly as not having enough. Having $5M in excess capacity could cost you upwards of $25,000 in monthly non-usage fees. Operational efficiencies and turning your lines is essential, as is forecasting your volume and maintaining the appropriate lines and line levels. MATCHbox has relationships with many warehouse line providers and can assist in preparing the application, obtaining credit approval, and ensuring you’re on the right path, steering clear of these non-usage fees. Doing nothing can sure cost you!

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