Several mortgage industry trade groups are urging the Department of Housing and Urban Development to exempt warehouse lenders from provisions of the Real Estate Settlement Procedures Act.
“It is important for HUD to recognize that warehouse lenders make commercial loans to mortgage lenders to facilitate secondary market transactions and they are not engaged in table funding when they do so,” said the groups. “The relationship of a warehouse lender to a mortgage lender is in no way the same as the relationship of a wholesale lender to a mortgage broker, which is the context that gave rise to the table funding provisions contained in the RESPA rules. Accordingly, these activities should not be subject to RESPA.”
The letter, submitted by the Mortgage Bankers Association, American Bankers Association, and the Financial Services Roundtable, is in response to HUD’s solicitation for information after the agency said it may issue new guidance under RESPA to address possible changes in warehouse lending used to fund federally insured mortgages.
The last time HUD updated its guidance was 15 years ago, when it amended the rules to add a secondary market exemption and define “table-funding.” If HUD determined that warehouse lending constitutes table funding, it would have an extremely negative effect on the mortgage industry said the groups.
“Subjecting warehouse lending to RESPA coverage will impose new disclosure obligations and liability on warehouse lenders that are inapposite to their functions and capabilities,” they said. “Such coverage will increase costs to such an extent that warehouse lending is unlikely to continue as an economically viable model.”
According to the letter, what separates a bona fide warehouse line from a table funding transaction is that the mortgage lender, absent default under its warehouse line, retains the benefits, rights and obligations of ownership of the loan pending the sale of the loan into the secondary market while the warehouse lender provides temporary financing in contemplation of the secondary market transaction.
The associations urge HUD to issue clarification that warehouse advances are exempt from RESPA. “Clarification will ensure the continuation of an active warehouse lending market,” they said.
To view a copy of the letter, see here.