Several months ago on the blogwe discussed the predicament small independent lenders are in because they are no longer able to access the cash to make their loans. That is because warehouse lending has dried up considerably. That leaves the big banks to get most of the share of the mortgage market. As it stands today, Wells Fargo , J.P. Morgan and Bank of America deliver more than half of all new mortgages.
But now, as first reported in the Wall Street Journal, "Fannie Mae and Freddie Mac are preparing to introduce a program aimed at helping independent mortgage banks acquire the short-term credit they need to make home loans."
They would do this through advance commitments to purchase the home loans, as long as they meet certain quality standards. This way the smaller banks could get short-term credit because the loans would be deemed less risky.
I gave a shout over to Howard Glaser this morning, who recently launched an advocacy group for community based mortgage lenders called Community Mortgage Lenders of America. He and the group have been pushing for such a plan.
Fannie Mae's plan to increase the flow of mortgage capital to independent mortgage bankers is welcome news for borrowers. By making credit available to the community based bankers who make 46% of the mortgage loans in this country, the cost of mortgage credit to borrowers will go down. With the housing market showing signs of a fragile recovery, Fannie's action will help ensure stability in the housing sector.
To say that every little bit helps in today's mortgage/housing market is an understatement. Glen Corso of the Warehouse Lending Project says, "Based on the details available this program should expand warehouse lending capacity by allowing more efficient utilization of capital at the warehouse banks, that is allowing them to do a greater volume of warehouse lending with the same amount of capital. That development would definitely be a plus for what is still a very constrained situation in warehouse lending. More remains to be done and we continue to work with Fannie , Freddie , Ginnie Mae and the Treasury, but this is movement in the right direction."
We saw mortgage applications jump over 16 percent last week because rates dipped below five percent. Granted, the bulk of these were refis, but there was also a surge in purchase applications. If smaller lenders can get back in the game, that will only create more competition and hopefully at least provide the foundation to keep rates low without need for additional government intervention in the market.
Questions? Comments? RealtyCheck@cnbc.com