This article examines the fallout that warehouse lenders are facing as a result of several issues in the mortgage industry. Despite being widely seen as a “safe” part of the industry, warehouse lenders have been hurting due to dwindling refinance volumes and volatile mortgage rates, which have decreased demand while adding pressure to the usually reliable profit margins. Also contributing to the problems are high concentrations of a single product, such as HARP loans, and the increasing amounts of non-agency and non-agency-eligible products in the market.

The article explains that these issues have all contributed to the warehouse lenders feeling “the squeeze” since late 2014. Warehouse lending lines of credit were traditionally provided for short periods with little to no skin-in-the-game requirements and high advances. However, as the mortgage industry as a whole has changed and become more volatile, warehouse lenders have had to adjust their strategies. For example, there is now less willingness to provide longer-term credit lines or ‘evergreen’ lines and requirements for skin-in-the-game have been rising. There has also been a decrease in the amounts of advances provided.

The article goes on to explain how warehouse lenders have had to become more selective in their underwriting process and have hiked up rates and costs in order to protect themselves and remain profitable. Furthermore, the size of the industry players have been decreasing overall as consolidation and bankruptcies in the sector have intensified. This has led to fewer lenders and greater competition, which drives prices down.

Overall, warehouse lending is facing a difficult situation due to a variety of issues plaguing the mortgage industry as a whole, including fluctuating refinancing volumes and interest rates, expensive non-agency products, and opportunities for higher advances and profits. Warehouse lenders have had to adjust their strategies and become more selective with their underwriting, as well as hike their rates and costs. Additionally, the size of the industry has decreased, leading to greater competition and driving prices down. In order to remain successful, warehouse lenders will have to continue to stay aware of market trends and adapt accordingly.

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