The Money Store Inc. has begun to supply smaller mortgage bankers and brokers with funds for home equity loans.
The Union, N.J.-based home equity powerhouse has formed two units to service this growing industry. The first will supply short-term funds, sometimes called warehouse loans, for those wanting to lend to borrowers with impaired credit.
The other unit will buy closed loans from smaller originators for securitization on the secondary market.
Lenders say the Money Store has the potential to dominate this emerging market.
Warehouse lending for the origination of less-than-stellar home loans has become a burgeoning business over the last several months. With the downturn in originations of top-notch loans, many lenders are looking elsewhere for mortgage production. One avenue: B-to-D loan originations.
"Every broker is going to do a lot more B-C paper," said Michael B. Gerber, co-owner of Larchmont Mortgage Co., a Los Angeles brokerage. "That is the growing segment of the industry."
But for some small bankers, funding is a major impediment to making these loans. Then along come the Money Store and others with funding backed by the massive appetite Wall Street has shown for securities based on these loans.
Michael Benoff, a Money Store senior vice president and the head of the new units, said the potential for this market is "for sure" in the tens of billions of dollars.
"Our primary goal is to build relationships that will grow and mature," he said.
Mr. Gerber of Larchmont Mortgage said price and profitability were the key factors in determining whether mortgage brokers take on warehouse lines to originate loans to borrowers who do not meet Fannie Mae and Freddie Mac standards.
Several large companies, including Ford Consumer Credit Co., Irving, Tex., and Pasadena, Calif.-based CWM Mortgage Holdings, which is part owned by Countrywide Credit Industries, have jumped into the fray.
CoreStates Bank, Philadelphia, is probably the largest provider of warehouse lines for B-to-D loans among banks.
Princap Mortgage Warehouse Inc. is one of the fastest-growing companies in this market. The Maple Shade, N.J., lender has funded nearly $100 million since it was opened last summer.
Frank B. Smith, president, said the company was increasing its funding by 40% per month.
He said the Money Store could fund as much as $500 million of home equity loans a year through its new unit.
"I think they certainly are in the position to be a leading contender for the purchase of a nonstandard product, or B, C, D paper," he said.
Mr. Benoff shrugged off estimates on how much the Money Store would fund per year. He said company will provide warehouse lines of $1 million to $10 million.
There is no requirement that lenders that get a Money Store warehouse line must sell their closed loans to the Money Store's correspondent lending division.
The Money Store has developed a tremendous ability to securitize loans. Mr. Benoff said these new units represent, in part, an effort by the Money Store to maximize that capability.
