"Warehouse" brings up images of dodgy waterfronts and dark film noir detective stories, with tough-talking private eyes trading punches and dodging bullets from unruly mobsters. But for mortgage lenders, a warehouse is more similar to what former Mortgage Bankers Association (MBA) chairman John Robbins, CMB, once described as "the industry's oxygen." [paragraph] Unless you're a financial powerhouse with ready cash, you can't live without it. That's something that warehouse lending experts have said for a long time, particularly when the industry nearly ran out of air. [paragraph] As the mortgage banking industry emerged to take its place as a major player in residential finance, warehouse lenders arose to become the indispensable funding bridge between originators and the secondary market. [paragraph] In the 1980s, lending growth was spurred by economic recovery, and the warehousing business grew with it. Along with the sector's rise, so, too, grew a company called Street Resource Group (SRG), Atlanta, and the influence of its founder, Stanley Street.
With a background in accounting and finance, Street was a vice president at a large regional bank in Atlanta when he founded his own firm to service the needs of community banks.
Nearly 30 years later, Street Resource Group has become one of the largest services companies devoted exclusively to the warehouse lending sector.
Just since 2008, its technology has handled more than $350 billion in warehoused mortgage loan transactions between originators and providers of warehouse lines, according to the company. With 45 current warehouse-lender clients servicing more than 800 mortgage banking companies, SRG recently surpassed 8,500 end software users.
Yet the road has been anything but smooth.
Building a bridge to the warehouse
While it's rarely thought about by mortgage industry rank and file, warehouse lending is critical to mortgage production. Some would call it the industry's lifeblood, because without it, only the very largest banking entities would have the ability to sell loans to the public. Warehouse lines help keep a diversity of lenders active in the marketplace--which helps keep the industry competitive.
Yet as important as warehouse lending is, it's not particularly known as a hotbed of technological innovation.
When Street founded his company, his expertise in asset liability management became the main focus of his consulting practice. Technological tools were merely a means to an end in supporting the analytics and decision-making processes. Street was good at spotting a need and filling it, and financial institutions had huge needs.
"From 1986 to 1994, I was primarily dedicated to bringing expertise and technology-based tools to underserved banks, mainly in small towns," Street says. "Some consultants didn't want to go to rural Alabama, for instance. So my whole market was built around service to underserved markets."
For banks with the means to do it, warehouse lending offered great margins. But for smaller banks, it was extraordinarily hard work.
"Back then, if a small bank had a warehouse division, it was a completely manual process being done with spreadsheets and fax machines," Street recalls.
If a small regional bank wanted to provide warehouse loans efficiently, it needed technology. But by the mid-1990s, there were two options: build your own system--a costly alternative generally only available to the big banks--or buy technology that was mostly geared to larger institutions.
Street was approached by a banking client to automate the process of selling warehouse lines to...