How Technology Is Transforming Warehouse Lending

Following the Great Financial Crisis of 2008, many of the nation’s largest banks began gravitating away from mortgage origination, concerned about higher risks, lower profits, and a changing regulatory environment. Over the last decade, independent mortgage banks (IMBs) or so-called “nonbanks” have filled the gap. Warehouse lenders extend short-term lines of credit to IMBs, secured by real estate collateral, allowing nonbanks to fund loans in their names rather than as a broker. IMBs originate and quickly sell the loans into the secondary market and pay the lender back.

In 2019, nonbanks accounted for 85 percent of mortgages securitized by Ginnie Mae, 60 percent of Fannie Mae mortgage-backed securities (MBS), and 53 percent of Freddie Mac MBS. IMBs serve millions of first-time homebuyers, veterans, moderate-income and rural families, producing more than 82 percent of Federal Housing Administration (FHA) loans; 68 percent of Veterans Affairs (VA) loans; and 66 percent of Department of Agriculture Rural Housing Service (RHS) loans in 2018.

Last year, as interest rates plummeted, fueling a borrower and refinance boom, IMBs’ share of mortgage originations ballooned to 68 percent by the third quarter of 2020, up from just 12 percent a decade earlier. As a result, warehouse lending has evolved into a critical component of the mortgage ecosystem.

Elevating Operational Efficiency

As the pressure to support a growing mortgage market builds, both warehouse lenders and IMBs are looking for new ways to streamline mortgage workflows, elevate operational efficiency and improve customer service. They also need to increase transparency, improve compliance, reduce transaction cycle time, and lower costs. Institutions seeking to keep pace with digital transformation and an evolving lending environment need technology systems and services to address their unique position in the lending ecosystem. These capabilities should offer the ability to scale and adapt as the market changes, which can pose major challenges.

“Advances in information technology are presenting unique resource challenges – firms don’t have huge IT departments full of computer programmers and database analysts,” said Rich Berg, SitusAMC Senior Director, Warehouse & Custodial Tech. “Any IT complexity is a burden because these companies typically don’t have the experience, resources or budgets for more complex implementations.”

To that end, savvy firms are turning to outsourced technologies, purpose-built to support warehouse lending operations, with complimentary services that can further support the execution. SitusAMC’s warehouse lending technology offering includes the recently acquired Warehouse Loan System (WLS) supporting community and mid-sized institutions, and ProMerit, designed for larger institutions. Together the systems support more than 60 clients representing approximately $3 trillion in loan financing during 2020. WLS has historically focused on smaller lenders and the primary markets, while ProMerit has catered to larger IMBs, warehouse lenders, and the capital markets side of the business.

These systems give lenders the ability to manage, track, fund, and secure repayments while supporting audit and compliance requirements. They feature automation to streamline tasks and assist with file upload and reporting. Importantly, they empower institutions to keep up with current innovation and continually implement best practices across their warehouse lending operations.

In a new ePaper, 5 Considerations in Choosing a Warehouse Lending Technology Solution, SitusAMC lays out five factors to consider in choosing a technology solution, including qualities to look for in software and support services. Key considerations include:   

  • Can the institution support upfront investment in in-house technology and support staff?
  • Can in-house systems quickly evolve with digital transformation?
  • What kind of lending is involved, and should the third-party system be a turn-key or customized solution?
  • Does the solution easily integrate with loan origination systems (LOS) and other third-party systems?
  • Does the institution want to take a hands-on or hands-off approach to IT and operational administration?

“Warehouse lending is a $600 billion industry and is indispensable in the mortgage production process,” said Stanley Street, Vice Chairman of SitusAMC Technologies. “The right technology solution will make that process more seamless for both lenders and IMBs, and ultimately, better for consumers.”

To view our new ePaper “5 Considerations in Choosing a Warehouse Lending Technology Solution”, click on the image below:Download the SitusAMC ePaper "5 Considerations in Choosing a Warehouse Lending Technology Solution"To learn more about ProMerit click here. To learn more about WLS click here.

Keep up with the latest news and perspectives in real estate