Interviews May 19, 2014

Is Warehouse Financing on the Upswing? Finance Partner Karen Gelernt’s Outlook

Karen Gelernt sat down to discuss mortgage loan warehouse financing and the regulatory issues impeding recent activity. Gelernt—who represents banks, investment banks and other financial institutions—led the Financial 411 seminar in New York on June 3, 2014, which explored where we are now with commercial and residential mortgage loan warehouse financings.

Residential mortgage financing seems to be everywhere right now. Is the market back?

Refinancings are down; however, the market seems to be seeking new products such as non-performing mortgage loans and jumbo mortgage loans. I think that when the securitization markets open further, you will see a further jump in activity in the finance market.

Regulatory issues have taken center stage for the last year or so, does that remain the number one challenge?

Yes. I think that it is challenging to ask liquidity providers to continue to provide that necessary liquidity to the market, but continue to regulate them in ways that are not always clear and do not always make practical sense for those being regulated to conduct business. This continues to hamper liquidity in the market.

What’s the biggest change in your own practice in the last five years?

There has been an increase in structural complexity. With more funds entering the market looking to invest in residential mortgage loans and looking for liquidity, the structures required of the funds are becoming increasingly complex in order to accommodate the tax elements. So instead of a straightforward repo of mortgage loans, you may have a repo of securities that are secured by another level of equity interests that actually own the mortgage loans, and in some cases REO properties. The trick is to make the transactions for the lender ultimately collapsible to the mortgage loans if an event of default occurs.

You entertain clients a lot and certainly have your pick of the best restaurants in NYC. What’s your fail-safe spot for a great dinner?

Well, there are a great number of fantastic restaurants. However, my personal favorites for client entertaining (for location, great food and great service) are Ai Fiori, Capital Grille, Gramercy Tavern and Le Bernardin.

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