Mary Kladde and Ruth Lee
The mortgage market is disintegrating under liquidity constraints in the primary (origination) market. Wall Street’s loss of confidence with their investors isn’t being reversed by massive infusions of bailout money. Property values continue to sink and the impact on local economies is profound – equity loss, property tax loss, job loss, loss of consumer spending, business closure – these all serve to exacerbate and accelerate this recession. The Economy isn’t Wall Street, or at least that is not where most of us feel it… it is right here in our homes, neighborhoods and towns. With time and billions more to Wall Street, we will see a painfully slow reversal, but can we really afford to wait?
Long conditioned to determining economic health based on the rise and fall of the Dow, the small business arm of financial services are allowing the focus to remain macro – when it really needs to be micro. The answer isn’t thinking bigger, rather thinking smaller and turning to the only stable financial quarter in our economy with capital, the community bank and credit union. These banks have capital to lend; however, the experience gap for safe warehouse lending in the mortgage market can be a significant barrier to market entry. As a solution, Titan has established a service platform directed at supporting warehouse lending operations focusing on due diligence, compliance and profitability.
Since Titan’s calls last month for attention to the liquidity problems plaguing the primary market, we have received unprecedented interest in our position, blog and services. This is precisely because there are hundreds of small business owners facing their own certain demise if the unthinkable happens, if they lose their warehouse line- often a business ending event. The remaining mortgage bankers have good business models, based on long term growth through servicing their community. Today, they are facing the serious problem of having to ration their ability to service homeowners in their community. A solution is critical.
Community, regional banks, and credit unions, much like the remaining mortgage bankers, have stayed the course through measured growth and conservative business models. They did not benefit from the largesse of the last ten years with windfall profits, but they also didn’t expose their shareholders, depositors or members to the irresponsible losses seen elsewhere. As the front line of Main Street liquidity, the community bank and credit union directly benefit from local economic health in a very direct and immediate way.
In a deepening recession, there aren’t very many viable investment options for local banks. Wall Street offers little promise or security; fraud is rampant, losses epic. Consumer credit and auto loans are a complicated choice of risk versus return. Commercial lending is difficult to justify in a contracting economy. In discussions with mortgage bankers, they often have access to a local bank that is tentatively willing to offer warehouse lending. These banks are beginning to recognize the significant profit center that warehouse lending would offer, and the concurrent benefit of strengthening their local economy.
Despite the obvious synergies between local banks and mortgage bankers, there are strong operational considerations to be addressed. These banks are reticent to enter an unfamiliar market with little or no operational or technological support. From collateral management to line reconciliation to technology, a local bank will have the same operational support needs as any warehouse line lender. Titan’s service platform provides a variable cost solution to micro warehouse lending with specific focus on the needs of local banks. As mortgage bankers turn more and more to their local banks for warehouse lending, Titan will lead this grassroots solution to primary liquidity.
