100% nonprime lines offered to brokers
By MortgageDaily.com staff
3/31/2005

NovaStar Financial Inc. is promoting warehouse lines that fund up to 100% of investor or stated income loans for brokers. But the successful transition from mortgage broker to mortgage correspondent is eluding many who attempt it.

The Missouri-based mortgage banking company announced Tuesday it now offers the temporary financing lines to brokers and correspondents through its warehouse funding unit NovaStar Capital Inc.

"NovaStar Capital's experience with warehouse lending enables the emerging broker/banker to grow volume and profitability, as well as providing the established mortgage banker with short-term financing and national resources from the NovaStar team," said Kenneth Logan, head of the secondary unit. "Our nonconforming focus allows NovaStar partners to fund nonprime or alt-A loans up to 100 percent of their warehouse lines."

With Logan, who previously headed national warehouse lending for PCFS Financial Services, "NovaStar Capital has made a very good start based on his relationships throughout the industry," the parent company said.

The Atlanta-based subsidiary offers correspondent lenders a traditional warehouse line, which provides short-term funding for all types of residential loans that may be delivered to NovaStar Mortgage or other approved investors. With this program, the correspondent draws loan documents in its own name and conducts processing functions for the loans.

The option designed for brokers with a lender's license who don't have the infrastructure of a traditional mortgage lending operation is a managed warehouse line. This program allows them to use investor guarantees and approved service providers to perform requirements typically expected of a dedicated lender, such as closing, post closing and shipping, according to NovaStar.

While the new program offerings may take some of the pain out of a transition from broker to correspondent, one NovaStar executive previously noted the company hasn't seen much success with its mortgage brokers attempting the conversion.

"Once they find out what's involved, with HMDA reporting, 1098 reporting and all the legal things you have to do as a banker, that you don't have to deal with as a broker, they kind of have second thoughts," David Pazgan, a NovaStar executive vice president, recently said at a nonprime trade conference. "The number successfully [making the change] is relatively low right now for NovaStar."

Pazgan said brokers originating a couple of million dollars a month are offered a warehouse line.

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