While the Federal Reserve has said they will pour virtually unlimited amounts of capital into the mortgage-backed securities market there is another problem on the horizon; non-banks use warehouse lines of credit to fund their mortgages which are usually packaged and sold to private investors or government-backed agencies; in a normal world warehoused loans have very low default rates because the mortgages are very new but mortgage holders have been told they can take a 90-day holiday from servicing the loans without facing penalties; Fannie Mae, Freddie Mac and Ginnie Mae typically reject loans that are already in default so originators are trying to sell these loans “as fast as humanly possible”; but for non-conforming loans (that can’t be sold to one of the aforementioned agencies) there is not the option to securitize before the first payment is missed; some warehouse lenders such as JPMorgan Chase have stopped offering that kind of financing. Financial Times
