Fannie Mae launches $1 billion small lender plan
NEW YORK (Reuters) - Fannie Mae, FNM.P the largest provider of funding for U.S. home mortgages, on Monday said it is launching a $1 billion program to boost money available to small- and mid-sized lenders.
The program would provide credit lines for 10 to 12 lenders in 2010, a spokeswoman said.
Since the onset of the credit crunch, banks have reined in and tightened requirements for credit to smaller lenders, curbing availability of mortgages needed to stabilize the U.S. housing market. By early 2009, capacity of these lenders fell to between $20 billion and $25 billion, from $200 billion in 2007, according to the Mortgage Bankers Association.
The so-called "warehouse lending" provides short-term funds for smaller bankers to make loans earmarked for later sale. It allows them to compete with large, retail lenders, which have taken market share in recent years.
"In this market, lenders who rely on warehouse funding are struggling to sell their loans and replenish their funds in a timely way," said Michael Williams, President and Chief Executive Officer at Fannie Mae, in a statement.
"We are taking action now to help fill the gap by providing a billion dollars of critical liquidity targeted at smaller lenders across the country," he said.
Warehouse lending has already begun to make a comeback as banks demand higher quality loans that smaller counterparts are able to make, said A.W. Pickel, chief executive officer at LeaderOne Financial Corp. in Overland Park, Kansas. Banks had reduced warehouse lending when loan officers were "doing every type of loan imaginable," including subprime, he said.
But small lenders may continue to be locked out of the business as sources of funding or loan guarantees, including the Federal Housing Administration, boost capital requirements of their counterparties, analysts said.
In addition, scrutiny of companies granted the credit lines continues to be intense, said Scott St. John, executive vice president of production and branch development for American Pacific Mortgage in Roseville, California.
"Warehouse lenders have two mandates ... continue profitability and increase your net worth consistently," St. John said. "If you lose money any month or your net worth goes in the wrong direction, they shut you down."
Fannie Mae did not name lenders who will receive credit lines, saying it has only just finalized the funding plan that will be run through Natty Mac, a warehouse company owned by Guggenheim Partners, LLC.
Congressionally-chartered Fannie Mae and rival Freddie Mac since September 2008 have been operating under government control after rising losses from delinquent loans jeopardized their ability to provide money to the housing market. With private capital for mortgages largely frozen, the companies have become even more important to the health of housing.
Their business models that put implicit U.S. backing on debt that benefits shareholders is due for overhaul, however, as their past losses have cost taxpayers billions.
(Editing by Andrew Hay)