New Worry List entry: Increased capital requirements for warehouse lenders.

There was a very good article written for American Banker this week.  You can see it here. (registration required)

The essence of the piece is summarized in the column’s first paragraph:

“When does a warehouse loan become a loan, and who owns it? If regulators get their way in the answers to those fundamental questions, dozens of community banks would have to set aside twice as much capital as they do now for the warehouse lines of credit they extend to nonbank mortgage lenders.”

The author of the article suggests many smaller lenders would be forced to set aside as much as twice the capital they do currently for lines extended to nonbank lenders.

Needless to say, such a requirement would be very bad news for smaller lenders as well as the market on the whole.  Many would be forced to exit the warehouse segment, unwilling or unable to foot the bill for increased capital.  This is not to mention the removal of much needed liquidity in our slowly recovering market.

We will watch this story closely to see what develops.  This may end up being a very big story.

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