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Mortgage Investors Diminish

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DALLAS — The number of investors acquiring new loans from mortgage banking firms has tumbled by two-thirds, according to one warehouse technology firm. At the same time, as activity is redistributed among warehouse lenders, vast opportunity is being created for new warehouse players.

Investors fell from around 600 in early 2005 to about 200 at the beginning of last year, Stanley Street, president of Street Resource Group Inc., said in an interview Monday with MortgageDaily.com while attending the Mortgage Banking Conference & Expo hosted by the Mortgage Bankers Association.

He noted that as of December 2007, six investors, including Countrywide, Citigroup and SunTrust, handled 60 percent of business and another 10 investors were responsible for 40 percent. He said his company, based in Atlanta, has 20 customers responsible for about half of the market.

Street’s vantage point, as a technology provider and consultant for warehouse lenders, gives him valuable insight into the world of secondary marketing. He said his company, which handles 50 percent of the warehouse lending market, has been providing Windows-based software applications for 14 years. Their Internet-based version, developed five years ago, requires software to be installed on originators’ desktop computers.

Street Resource, founded in 1986, announced Sunday a new version of its flagship Warehouse Lending System.

The executive indicated his firm helps prevent fraudulent double fundings by comparing funding requests among its own customers and enabling warehouse lenders to incorporate other third-party databases to do fraud checking, validation or valuation.

Street, who has reportedly been working in the financial services industry for over 30 years, sees opportunities for new warehouse lenders.

“What’s happening in the industry is this huge redistribution as the large-tier warehouse lenders basically vaporize — Wall Street, the RFCs, the WaMus of the world. All the originators that still need warehouse funds … are all searching for warehouse lines,” he explained. “In the 30 years I’ve been in this business … this has been the most volatile, changing year.”

While warehouse lenders used to demand that originators have no more than one warehouse line because of the risk of double funding, originators are now obtaining several lines.

“Instead of one $100 million line, they’re going to get four $25 million lines,” Street stated. “So they’re not dependent on any one provider for funds.”

He noted many new warehouse lenders — mainly financial institutions with low cost funds and some Wall Street investment banks — are entering the market right now because it is the best time to be in the warehouse lending business.

“There are too few suppliers. There are too many originators seeking warehouse lines,” Street said. “It’s good product and basically a controlled delivery.”

Other factors making it a good time to be in warehouse lending include more rational risk-based pricing than had previously been in the marketplace, maximum risk control and the declining cost of technology.

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