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   ARTICLE   |   From Scotsman Guide Residential Edition   |   September 2005

7 Tips for Building a Warehouse Relationship

The key to securing a successful warehouse line is to start with a solid foundation

r_2005-09_Logan_spotWarehouse lines are the lifeblood of a mortgage lender’s growth. For those making the leap from broker to mortgage banker with an increasingly valuable book of business, the ability to fund loans through warehouse lines from a lender makes all the difference.

Healthy warehouse relationships are a key to your success. Having been on both sides of warehouse lending for more than two decades, I can tell you that finding the right partner is about more than receiving the lowest price and getting approved. It also is about building a long-term relationship with warehouse lenders that are a comfortable fit for your business, company culture and products offered.

Although it is important to run the numbers and examine pricing, it also is worthwhile to pay attention to the “soft” questions in warehouse lending. Look at each lender’s attitude, responsiveness and ability to provide expert advice. The way you and your warehouse lender work together will influence your business’ growth.

Whether you are just starting down this road or have secondary-market experience, here are seven tips for finding and maximizing your warehouse relationships:

1. Get to know senior management

When narrowing down potential lenders to a short list, go beyond account executives to engage your potential partner’s senior management. Find out who makes policy, who reviews exceptions and looks at approvals and who has the final word. It’s also a good idea to actually meet the senior managers.

It is important to ask many questions about decisionmakers’ backgrounds. How long have they been in the mortgage business? How long have they done warehouse lending and where? Have they worked on your side of the business? Have they worked with companies similar to yours in size, product types and so on?

Other pertinent questions could include:

  • What is their philosophy of doing business? 
  • What makes them different from other warehouse lenders? 
  • How involved do they get with customers? 
  • What’s important in their firm’s interaction with clients such as your company? 
  • What happens when their opinion differs from their customers’? 
  • What are their feelings about the mortgage market’s health now and in the future?

Determine if their answers fit with your own insights.

2. Listen for clues to culture

Every lender claims to have great service. But the shared culture of the people who work at a financial institution is what determines daily behavior, which determines the strength of your business relationship. Understand their attitudes and helpfulness by asking the following questions:

  • Who answers the phone when you call? Is it easy to get through? Do people return your calls and answer questions eagerly?
  • In processing transactions, who handles each stage of communication? How much time does the lender build into each step of the approval and funding process?
  • How does the institution communicate with clients day to day? Does your company work the same way?
  • How does the lender handle problems? If something goes wrong the day before a closing, who will your people call to fix it?
  • Do people smile? Do they have time for you? After all, you are the client — be sure that’s the feeling you get from the warehouse lender’s staff.

3. Feel for flexibility

We all need to be flexible to survive, much less excel. Try to assess whether your potential lender thrives on its eagerness to do business or is stifled by its devotion to bureaucracy. Is the emphasis on rules or on closing deals?

To evaluate a lender’s flexibility, talk to its employees about how they handle exceptions or problems when they arise. Questions can include:

  • How will the institution approach the approval process for your firm’s warehouse line, as well as follow-up reviews?
  • In handling transactions, how often do originators send in loans that don’t quite fit the warehouse lender’s standards? What happens to those transactions?
  • When the institution rejects a transaction, how does it communicate with the lender? Does it call and talk through the issues, send an e-mail or write a letter?
  • Who makes decisions on handling exceptions? Does the lender allow exceptions? When?

Again, attitude is key. You need a flexible warehouse partner who uses policies and procedures to find a way to say yes, rather than looking for an excuse to say no. That partner will help you build your business.

4. Make contacts on lower levels

If you only interact with warehouse lenders’ sales teams and senior managers, you may encounter friction later, when you need to make transactions work at the lower levels. You can test sales’ claims by making contacts on multiple levels:

  • Ask warehouse lenders to set up in-person or phone conversations with the credit department, relationship managers and operations managers. Ask them detailed questions about their processes. 
  • Debrief your team members to see if any concerns surface and have them follow up for answers and to gauge response time.
  • Travel to the warehouse lenders’ headquarters to see how their processes work in real life. Take key members of your team. You’re building a relationship by “putting a face with a name” on both sides.

5. Determine how size matters

A warehouse lender’s size is key. There is truth to the maxim about working with partners who look at your business as an important piece of theirs. Small and medium-sized mortgage bankers dealing with giant financial institutions sometimes feel like small fish in a big ocean; it’s hard to get much attention.

When gauging a lender’s size, look at your own capacity for funding your current lending practices as well as future business. This will help you decide whether a large institution or smaller one can best support your growth.

6. Find if two — or three — are better

My experience suggests that two warehouse lines are generally better than a lone line. Too many relationships might pose problems, but diversifying to two or three can aid your growth in many ways.

Some warehouse operations restrict transactions they fund. One could limit nonprime loans, for example, to 10 percent or 25 percent of a line. In this case, it would pay to have one warehouse lender mainly for prime loans and another for nonprime products.

Consider receiving a warehouse line from a company with ties to an investor, too. This multifaceted relationship gives the warehouse lender an incentive to make life easy for you. Verify upfront that the warehousing partner is equally interested in your loans, whether they go to the affiliated company or to other investors. That flexibility will help maximize your business.

7. Be sure you’re a good partner, too.

Once you’re working with a warehouse lender, continue to pay attention. Every relationship takes two partners working together. Some ideas:

  • Involve your operations people in the decisionmaking and train them to succeed. Real-life experience of funding loans is a big step. Ask your operations people what works and doesn’t in the funding process. Have them list what’s important to them and consider those in your lender selection. 
  • Recognize that warehouse lenders don’t earn much per loan, and streamline operations to make interactions quick and efficient on both ends.
  • Teach your people to send necessary data for submissions in the right electronic or paper format to speed up processing and avoid bottlenecks.\
  • Stay on top of lenders’ need for information to manage risks. Both parties waste time if they must chase each other down for routine data exchanges under warehouse-line terms.

•  •  •

In the bigger picture, don’t take your lines for granted. Invest the time and energy to select the right warehouse lenders for your company’s people and culture. Keep your organization focused on using these relationships to help you make more loans.

Warehouse lenders are all about helping close transactions and getting them sold to your investors. That’s how we get paid. And that is how you will continue to grow.


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