Why is Liquidity Support Important During a Crisis?

The mortgage industry has weathered many changes over the past several years, through both a pandemic and a rollercoaster era of record low rates, which are now steadily rising as the Fed seeks to deal a fatal blow to high inflation.  One of the most significant changes, however, has been the increased focus on liquidity support for mortgage lenders.  


In the past, mortgage lenders had to rely on their own resources to continue funding operations while also seeking to sell loans to raise cash when necessary.  This system worked well during the growth years, but became a major problem during the financial crisis.  


When the market crashed, many mortgage lenders ran into liquidity problems because they could not sell their loans to increase capital and reduce balance sheet debt.  This led to many lenders going out of business.  The government responded to this problem by creating programs that provide liquidity support for mortgage lenders.  These programs are designed to provide funding to lenders allowing them to continue operating during times of stress.  


When there is a financial crisis, liquidity support is essential to prevent panic by ensuring enough funds are available to meet the demand for withdrawals.  This prevents a bank run and helps stabilize the financial system.  


Of course, a lender is only as good as its ability to repay its own investors and other stakeholders, so ensuring liquidity is paramount to maintaining a good reputation and expanding a loan portfolio.  



What is Liquidity Support? 


If you’re a mortgage lender, you know that liquidity is key to success.  After all, without enough cash on hand, you can’t make loans or fund operations.  That’s why many lenders turn to liquidity support when they need a boost.  Liquidity support comes in many forms, but essentially it’s a way for lenders to get funding when they need it. 


Liquidity support can take the form of a line of credit, a growth enablement product, a loan, or even an equity investment. There are also many benefits to having liquidity support.  For one, it can help you weather tough times.  For example, if the housing market takes a downturn, with liquidity support, you can still make loans and keep operations running smoothly without business taking a hit.   


Another benefit is that it can help you take advantage of opportunities.  If the housing market is booming and you need to make more loans, having liquidity support can help you do that.  Of course, use of liquidity support is not completely risk-free.   


The most obvious risk is that you may have to pay back the support, with interest.  And if you can’t repay it, you may have to give up equity in your business.  Still, for many lenders, the benefits of liquidity support outweigh the risks.  And in today’s uncertain economy, having the ability to clear loans off of your books can be a lifesaver. 



How to Effectively Use Liquidity Support  


There are several ways that lenders can leverage the awesome power of liquidity support to survive lean times and thrive during good times.  As a lender, your mortgage loan portfolio represents your impact on the market.  When faced with a non-performing loan sitting on your balance sheet, you’re not only taking a loss on the loan itself, you’re also reducing your overall efficiency and profitability because your ability to originate new loans is reduced.  


Cash flow is the lifeblood of your lending practice, so it’s integral that you protect it at all costs. AXY Wrap is an innovative new liquidity support solution that allows lenders to keep cash flowing while transferring risk off of their books.  With AXY Wrap, there is no need to turn to a government agency or lender of last resort because you’re protected from the pitfalls of non-performing loans when AXY Wrap takes them off your balance sheet.  


Learn how you can get the liquidity support you need to thrive during and after the next housing downturn.  Try AXY Wrap Today. 


Legal Disclaimer:

This article does not constitute an offer to sell, or the solicitation of an offer to buy, any security interest in any jurisdiction. This material is distributed for informational purposes only and should not be construed as investment, legal, tax, regulatory, financial, or other advice. No assurance can be given that any investment objective will be achieved, or that an investor will avoid losses or obtain a return on an investment. While the information contained in this article is believed to be reliable, its accuracy is not guaranteed. Individuals should consult with their own professional advisors with respect to the legal, tax, regulatory, financial, and accounting consequences of any potential investment.

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