Why Not Broker?
Why not just broker loans?
The reason is simple . . . CONTROL!
When you use a warehouse line, YOU ARE THE LENDER. Therefore, you control the transaction. If you do not control the transaction, you have limited or no input into the many factors that create the overall customer service impression. These factors include name recognition, pricing, underwriting, funding, third-party vendors, and secondary market execution.
Also, you will make more net income if you use a warehouse line than if you do not. The only group who will argue this point are the wholesale lenders, and who can blame them? They want to buy your loans at the table so THEY can control the transaction and receive the benefits discussed below.
Due to economies of scale, most mortgage lenders need to be consistently producing a minimum of $3,000,000 to $5,000,000 in loans per month before profit becomes a compelling reason to use a warehouse line. Also, there is a definite need for a wholesale distribution channel because some loan products are so specialized as to require "centralized control", and some very good mortgage lenders need or want additional assistance.
Lenders with a warehouse line close loans in their own name(s). All documents list the originating mortgage lender as the "lender". The borrower recognizes the lender as such, and has no inclination to go directly to the investor or seek a different lender for his next transaction.
Fees / Pricing
Lenders with warehouse lines set their own fees and retain those fees in most cases. This fact enables them to price more competitively and to still be profitable.
Most lenders with warehouse lines either underwrite their own loans or control which of several investor-approved underwriting sources they use. This translates into greater flexibility on judgment issues and better control over turnaround time and customer service.
Ever have to wait on a wire transfer, need a "fed reference number", or miss a wire cut-off time? Ever forget to schedule a closing with your wholesale lender until too late? Ever pay a "RUSH" charge? Mortgage lenders with warehouse lines have more control over these potential funding problems than lenders without warehouse lines. First Horizon’s Cashier’s Check system is an alternative to wire transfers. Good warehouse lenders can fund very quickly, and know how important it is to make the mortgage lender look good to the ultimate borrower and closing agent.
Why be limited to only investors who buy wholesale? Maximizing profit requires having access to the best product and service the market has to offer. The best long-term investor relationships are built on mutual respect and the recognition that repeat business must be earned every day. To command the best service and pricing a relationship has to offer, investors must know that a mortgage lender has alternatives which come from having a flexible warehouse line.
Credit bureaus, appraisers, closing agents, document preparation companies, flood certification companies, and mortgage insurers are some of the important spokes in the service wheel. When a mortgage lender uses a warehouse line, it has more control over which companies provide services. Just like investor competition, best pricing and service are only obtainable when all vendors know that there are alternatives.