There are signs credit unions have begun to organize themselves to meet their and members’ needs for temporary mortgage finance. It’s called warehouse financing.
Warehouse financing in general refers to financing to help the flow of manufactured goods or raw materials, which usually were held as collateral for the financing, often in a warehouse. Warehouse financing in real estate refers to a procedure whereby a credit union, bank or other lender will use a line of credit from another institution temporarily to fund a mortgage they intend to sell on the secondary market. The funder has a collateral interest in the mortgage until it is successfully sold on the secondary market and the loan originator retains funds to issue another mortgage.
Before the current economic and housing crisis, warehouse lines of credit were not hard to find and were often offered by corporate credit unions. But after the crisis began, warehouse lines of credit frequently disappeared, leaving some credit unions unable to issue as many mortgages as quickly as they would like and leaving some mortgage CUSOs in the same boat.
One of those was myCUmortgage, a leading credit union mortgage lender owned by the $2 billion Wright-Patt Credit Union. Tim Mislansky, president of myCUmortgage and chief lending officer at Wright-Patt Credit Union explained that after the economic crisis started, Wright-Patt provided warehouse funding for myCUmortgage on its own but began to look elsewhere when it became clear it could no longer perform that function.
"We are a state-chartered credit union, and there was a cap on how much mortgage lending we could do," Mislansky said. "We got a waiver that moved it to $60 million, but by the end of the year I think we were at like $59.3 million."
The most logical source of additional funds were the credit union clients of myCUmortgage. The credit unions and CUSO wanted to make sure the funds were raised in an organized and transparent way and so contracted with a CUSO called CU Structured Finance to handle the deal.
CU Structured Finance is a financial CUSO owned by TMG Financial Services. TMG Financial Services is known primarily the owner and agent issuers of credit union credit card from CUs around the country, a business it finances with credit union investments that could be seen in many of the same terms as investment in CU warehouse lines of credit, Mislansky explained.
"By offering our credit union clients the option to lend us money through a warehouse line of credit, we gain access to low cost funds and the credit union benefits by obtaining a solid asset with a solid return. It also reinforces the collaborative approach to the myCUmortgage business model," added Mislansky.
TMG Financial Services launched CU Structured Finance in September of last year to both bring more sources of finance to more credit unions and to provide credit unions with a better investment vehicle than many of others currently available, according to TMG FS CEO Jeff Russell.
Since its launch, Russell said CU Structured Finance had provided warehouse lines of credit to Members Advantage mortgage as well. In that case, the CUSO found CU investors for the lines as well as monitored the investments and their terms. In the case of myCUmortgage, the CUSO found the investors and wanted CU Structured Finance to set up, administer and monitor the deal, Russell explained.