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Since the financial crisis of 2008, residential mortgage lending has gone through a lot of changes. One big change was that many depository banks decreased their mortgage production lines of business or closed that line of business entirely. This was due to increased regulatory costs that resulted in lower efficiency ratios, combined with losses, fines, and unwelcome press as a result of historical expanded underwriting criteria that contributed to the financial crisis. Further, the lucrative private securitization market all but dried up as the industry relied on “plain vanilla” underwriting requirements of the agencies (FNMA, FHLMC, and GNMA). These factors resulted in a substantial increase to IMB market share, which now accounts for over 60% of the total $1.6+ trillion industry.
Since IMBs, by definition, are non-depositories, they rely on third-party warehouse financing lines of credit, which are provided by both depository banks and broker dealers. Warehouse lines are generally one-year facilities that are fully collateralized by the underlying mortgage note. Although a warehouse facility is one year, each advance is generally less than 30 days. Mortgage loans are sold on a loan-by-loan basis to investors or aggregated in bulk sales to investors, or an originator can co-issue FNMA, FHLMC, or GNMA securities to be sold into the secondary market to a variety of investors. Warehouse lenders control the collateral and flow of funds during the funding and purchase period, finally providing leftover proceeds to the IMB after the warehouse lender is fully paid.