Over the weekend, I asked my wife about the most memorable place we’d visited in the last 10 years.  We’ve had the opportunity to see many places around the world and this one is very special.  Do any of you know the place in the image below?

See the answer below...

The answer is Iguazu Falls on the Argentina / Brazil border. SEE MORE

We talked yesterday about the opportunity for community banks to partner with a mortgage banker.  If a community bank is not interested in the mortgage banking aspect, they should look at warehouse lending only. 

Let’s look at three revenue components of a warehouse lending program, assuming $10 million in outstanding for a mortgage banking customer:

1. Let’s assume a 3.00% spread.  You’ll probably do better, but let's be conservative. On $10 million in loan production, that’s $300,000 a year or $25,000 month in spread income.

2.Let’s assume average mortgages of $200,000 and $150 for an advance fee.  On $10 million, that would be 50 loans, but mortgage bankers typically turn their lines twice a month, so at 100 loans per month, that’s $15,000 in monthly fee income.

3. You’ll probably charge $25 a wire, so at 100 loans, loans that’s another $2,500. 

We’re now up to $25,000 in spread income + $15,000 in fee income +   $2,500 in wire fee income...for a total of $42,500 per month

You might have to hire one person to handle day-to-day fundings, maybe at $5,000, but you might already have someone on staff who can handle this without having to find someone new.

This gives us a net of $37,500 a month or $450,000 a year. And given availability of fed funds, fed borrowing or FHLB advances, you can probably generate better than a 3% spread.

You’ll also generate good non-interest bearing accounts and will self-fund a not insignificant part of the outstandings. 

Also, with mortgage warehousing, you only finance mortgages that have already been sold.  First, they’re all very plain vanilla Fannie/Freddie or FHA-insured loans that have been sold to the major investors such as FNMA, BofA, Wells Fargo, Chase, and Citi.  Second, you already know the price at which each one was sold and the date that each will be purchased.

Make your own assumptions about how much capital you’d have to hold against this $10 million, and you can see that you’ll get pretty remarkable returns.

But regardless, $10 million in outstandings can make a big difference to a community bank. 

For a bank of, say, $100,000 million, that $450,000 a year in additional income can make all the difference in the world.  And we don’t need to help you on the math, but if you double this to $20 million in lines, you can double that income to $900,000 a year or $75,000  month.

We’ve helped eight banks establish warehouse lending programs recently.  In all cases, a local mortgage banker already had a relationship and was the catalyst to get the program off the ground.  It’s critical that a bank seek help in setting up a warehouse lending facility to ensure you develop the proper credit policy, process, procedures and agreements.