Part 1 – What questions should a mortgage lender ask their warehouse bank?
What questions should a mortgage lender ask their warehouse bank?
Establishing a warehouse line is one of the most essential functions needed to become a mortgage banker, but what questions should you be asking at time of application or upon renewal?
When working with our mortgage banking clients, many are unsure of the important questions to ask when searching for a warehouse line provider. In today’s short video, I will review key issues for you to be aware of during your next warehouse bank discussion.
Now, if you have not yet done so, remember to take advantage of our complimentary 30-minute initial strategy call where we analyze your situation and discuss whether a banker transition process is right for you!
During this call, we will provide practical expertise and understanding of the process from mortgage licensing, investor approval and relations, warehouse bank selection, third party fulfilment providers, E&O and Surety bond companies, origination strategies, coaching, consulting, and more!
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What questions should a mortgage lender be asking their warehouse bank?
I. What is your warehouse bank qualifying requirements?
- Line Size: Depending on your market and average loan size, will your warehouse bank provide you with enough capacity? Find out what their maximum leverage ratio is (Line Amount/Tangible Net Worth) and if any compensating factors can help increase the line size if needed.
- Net Worth: Whether you are a non-delegated lender just starting out, looking to expand to delegated underwriting, or opening up a TPO channel, net worth requirements will vary among warehouse lenders.
- Financial Statements: Once you determine the minimum net worth requirements, then confirm whether they will require audited or unaudited financials for approval and subsequent renewals. If you are required to produce audited financials, then make sure to account for the additional time and cost associated with such.
- Experience: Some warehouse lenders will be more flexible for newly established mortgage bankers while others will require a track record of being in business for multiple years.
II. What are the costs associated with your warehouse line?
While this may appear to be an obvious question to ask, it is not always addressed due to the fact many mortgage bankers are somewhat satisfied with their current provider and do not have the time to fully research the details for a proper comparison.
Make sure to be aware of key items such as your warehouse line interest rate, shipping fees, advance rates transaction charges (e.g., funding fees, wire fees, aged loan fees), extended dwell time rate increases, and any other charges/costs. Find out what the typical dwell time is for your warehouse line and the costs associated with extending those times as needed.
III. When are principal curtailments required?
A principal curtailment occurs when a loan has dwelled on a warehouse line for too long whereby the warehouse bank requires the lender to apply a payment towards a portion of the outstanding principal balance.
A good example of this could be when there is a manufacturing error that prevents the loan from being sold in a timely manner and because the dwell time exceeds a certain time frame (e.g., 30 days, 45 days, or 60 days, etc.) then the warehouse bank will require a principal curtailment from the lender to draw down the balance.
Another real-life example of this is happening right before our eyes with the recent closures of First Guaranty Mortgage Corporation (“FGMC”) and Sprout Mortgage. For any of those Non-QM loans that were funded by correspondent lenders using a warehouse line which were not purchased by FGMC or Sprout prior to closing their doors, it is reasonable to expect those loans will continue to dwell on the warehouse lines with recurring principal curtailment requests forthcoming.
Whether you are a delegated or non-delegated lender, it is always best practice to optimize your investor set so that you have multiple outlets for each loan product being funded with your warehouse line. This will allow you to mitigate risk and help protect your business from the unforeseeable.
Although today’s content was just a starting point, please tune in next time where we will expand into more details during part two of our series on what questions a mortgage lender should be asking their warehouse bank.
Now, wouldn’t it be nice if there was a blueprint available that would walk you through the steps on how to climb the mortgage banker ladder!
Well, that is where we step in to help with our practical expertise and understanding of the process from mortgage licensing, investor approval, warehouse bank selection, third party fulfilment providers, E&O and Surety bond companies, origination strategies, coaching, consulting, and more!
You can simply use our online scheduler to select a convenient consultation time and let us show you the Path to Prosperity!
Sean A. Stephens, Esq., CMB®
Broker to Banker Consulting, LLC
Call/Text: (714) 844-7146
Toll Free: (866) 989-0564 Ext. 419
Sean A. Stephens, Esq., CMB®
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