The Expert Podcast

…So there's a lot of mortgage companies that are shutting down because the volume of new mortgages is, is cratering. very few people are getting any refinances right When the rates go up nobody refinances because, the re the rates higher than what they have now. And the purchase mortgage volume is dropping like a stone also…mortgage originators, need a certain volume to keep the lights on. And a lot of them are closing down or filing bankruptcy They're laying off staff. And you know that has an effect on you know the people that work there and their vendors, but there's also another hidden…Loss that's going on behind the scenes And we're going to talk about this and it has to do with warehouse lenders…And…a mortgage originator like in this case we're talking about first guaranteed mortgage corporation. Is a retail provider of mortgages So if let's say you apply through a mortgage broker or directly with this originator, You are a…borrower that is doing a refinance or a new mortgage and you're going to borrow let's say $400,000…This. Mortgage. Originator approves it They underwrite it They do all the, the processing. And they fund. That $400,000 through a warehouse lender. So the mortgage originator first guarantee they actually don't. the check for 400,000. What they do is they get their warehouse lender, which is the actual money company. To write the check for $400,000. However. As a warehouse lender…They aren't on the hook for the whole amount, because…there are mortgage fees, there's commissions. there's also a recourse amount. So…the originator first guarantee they earned some money, but. They're supposed to pay back. Some of these costs of the warehouse lender. So let's say for example, The warehouse lender writes a check for 400,000 at the end of the month. The mortgage originator first guarantee they settle. up with them and they say okay we'll give you, you. You know $18,000 towards that or $28,000 whatever the the fees are towards that to offset the warehouse lenders cost. Because the warehouse lender. Makes money by funding these at a discount. There are $400,000 alone Their profit comes from the fact that it only costs them maybe $384,000. To get back that $400,000 loan over time. Right. So the originator is supposed to at the end of the month settle up with them. Well when the originator goes out of business…The…Funding company, the warehouse lender never gets that paid…And in this case there are tens or hundreds of millions of dollars. That are owed from this originator. To the warehouse lenders that there's never going to get paid In fact it's could be worse than that. There are also some recourse agreements. If a loan that is funded…Doesn't get all the underwriting stipulations. Or there's a first payment default. The originator has to buy the whole mortgage back. So for example, The funding company the warehouse lender. Writes a check for 400,000. With the contingency that they're supposed to get let's say pay stubs or tax returns or. a title insurance policy…and the originator Represents that they have that or they're going to get it. They're on the hook for recourse. If they don't provide it to the warehouse lender…On the other hand if the…mortgage goes into default on the first payment that the borrower never pays their first loan payment. Many times the originator has a recourse agreement that they have to buy back that loan for 400,000. That's an addition to the fees. So when that originator. Goes out of business. Those warehouse lenders are stuck. With. Hundreds of millions of dollars worth of losses. That they're on the hook for…This is having a ripple effect. In the mortgage industry because the warehouse lenders are now. Being a little bit. shy They're not going out of pocket. The warehouse lenders being cautious is causing more difficulty with mortgage originations. For the retailers…And the originators are having a tough time with some of their markets getting mortgages approved or funded because of other parties outside of their control not paying back these warehouse lenders In fact, in some cases the warehouse lenders are becoming under capitalized where they can't even fund new loans because they're not getting the fees from. The. The prior originators…This is going to have an effect on the retail market unless it's a federal guaranteed loan which has different stipulations. These warehouse loans are. That market may be disappearing. Maybe evaporating, that's going to just put even more pressure. On the real estate purchase market. And it may be something that. Causes a certain segment of the population that can't get a federal guaranteed loan. From even buying a house. So tell us what you think what's going on in your market Are you seeing this having an effect Are you a broker and you're having your warehouse lenders pull back. Are you an agent that's having more difficulty with contracts being funded…And if you have any association with the mortgage industry, put a comment below and let us know what information you have for a future video.