A form of wholesale lending known as table funding is growing more widespread. But a new HUD rule raises questions about how this popular form of lending may change in the near future.
Table funding is a response to market needs. By providing funds for originators at closing, it helps small firms whose warehouse credit lines are either nonexistent, or else too small to handle their loan pipelines. Providing funds in the name of the originating firms allows table funding to help them keep their identity within their local markets.
Yet, although its worth is proven to lenders, recent HUD regulations (under the Real Estate Settlement Procedures Act) that affect table funding seen as an obstacle to the ongoing growth of table-funding programs. But by the same token, recent guidelines established by the accounting industry encourage table funding. Lenders are allowed to amortize servicing-released premiums that they pay to originators, rather than expensing them in the current year.
Table funding is growing as more lenders discover that mortgage originators who lack any or adequate warehouse lines - particularly mortgage brokers, "provide a very valuable role in the mortgage process because they specialize in originations", says Don Bourland, senior vice president of Corinthian Mortgage Corp. in Overland Park, Kansas.
Table funding grew in use for many wholesale lending firms during 1992. Jacksonville's BancBoston Mortgage Corp., for instance, has seen its table- funded originations increase from $200 million in 1991 to $1 billion this year. But mortgage brokers could be less interested in table funding when the RESPA disclosure rules change on January 1, requiring borrowers to be informed in detail as to such payments to the mortgage broker as servicing-released premiums. Having to tell borrowers all the financial details of the deal when table funding "will cause me to get more aggressive in pursuit of credit lines", says William Schunk, president of National Standard Mortgage Corp. in Tarrytown, New York.
Currently about half of Schunk's business is table funded. National Standard has a $5 million credit line that wasn't adequate to meet this year's refinance business, thus causing more reliance on table funding. "As a general rule," he notes, "you get a better price if you use your own funds."
Lenders often seek to keep control of a transaction by insisting on preparing closing documents, Schunk adds. He complains that sometimes finds are wired the day before closing and the broker is charged for the overnight interest. Other times, the closing package arrives late, says H.A. (Tony) Davis, president of Preferred Mortgage Associates, Downers Grove, Illinois and of the National Association of Mortgage Brokers (NAMB). Such a development puts the originator in an awkward situation with his or her borrower. In a business where good customer service is essential, that can be awkward indeed.
Additional regulatory matters other than disclosure and accounting also are affecting table-funding practices. "Some banks want table funding even if they have warehouse lines, so the loans are never on the books," reports Gene A. Barber, account executive at National Mortgage Associates in Oklahoma City.
Several large national lenders report that they are either not getting into table funding, or else not expanding their existing programs, until they are certain how the regulations surrounding the practice will be interpreted. But from the growing number of lenders who do offer table funding, following are descriptions of how they are using this financing tool.
In 1988, J.I. Kislak Mortgage Corporation of Miami Lakes, Florida "was not well-known," says Marvin Schwartzbard, executive vice president of loan production. "We saw an opportunity in table funding" to make a bigger name for the company, he adds. Kislak perfected its system in its south Florida base before offering the program more widely in 1989.
Kislak's initial public offering (IPO) this year brought the matter of capitalized servicing premiums to the accounting industry's attention. Previously the firm had used more conservative accounting techniques. But in order to allow its performance to be compared with publicly traded mortgage lenders, Kislak's financial statement was reworked in its IPO documents. Servicing-released premiums paid to acquire loans were capitalized for the previous year.
Instituting an accounting change in the financial statements caught the attention of the Securities Exchange Commission, which then asked the Financial Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF) to rule on the accounting treatment. Out of that process emerged the current guidelines.
Today, Kislak offers three types of correspondent relationships. Under the first, originators "have their own warehouse lines, do their own underwriting and deliver closed, funded loans," Schwartzbard explains. Table funding is...