As published in Scotsman Guide's Commercial Edition, July 2005.
Mortgage bankers understand the importance of securing relationships with investors before loans are originated. Failure to do so can bring business cash flow to a screeching halt. It ties up warehouse lines and forces lenders to scramble for alternative investors or to secure alternative financing sources. Even with established relationships, experienced lenders know that at some point, they will find themselves with fallout loans tying up their warehouse lines and with no immediate investor in sight.
Portfolio lenders, on the other hand, consciously decide to keep the loans they originate. They opt for the steady income of a high-yielding mortgage portfolio instead of a one-time gain on sale. The challenge for many portfolio lenders is to secure sufficient financing, which will allow their portfolios to grow. Most banks have limits on how much they will lend to one company, even on a secured basis. Most specialty lenders often juggle numerous bank-warehouse relationships and private sources of capital. This highly fragmented financing structure can be a major distraction to management and limit potential portfolio growth.
However, a new source of funding is emerging, and it provides mortgage lenders with a competitive alternative to the traditional warehouse line. Permanent warehouse financing gives mortgage lenders a unique form of funding that guarantees an end investor and provides permanent financing for continuous loan origination.
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