One of the key mortgage segments funding home purchases in the recent past has been warehouse lending. The concept can be defined as short-term lending by large commercial banks or other financial institutions for non-depository mortgage brokers and bankers. Using originated mortgages as collateral, the warehouse lender makes available interim financing until the loans are sold off on the secondary mortgage market.

The housing meltdown has been devastating to the home loan business. Every financial institution has suffered from its effects, some more some less. Warehouse lenders generally were the backbone for the smaller mortgage originators, but have lately been cutting off their lines of credit, putting restrictions on them or exiting the business altogether. This has inevitably forced smaller home loan firms to curtail their product offerings and giving consumers fewer options when looking for a mortgage.

Call Fannie Mae and Freddie Mac, the two mammoth operators on the secondary mortgage market, to the rescue. The Wall Street Journal is reporting that they soon will launch, it's still unannounced, a pilot program to address warehouse lending. Basically what they plan on doing is to some degree replace the traditional warehouse lenders to provide more liquidity to the still reeling marketplace. So they'll step into the vacuum left by the private investor.

The mortgage industry has seen dramatic consolidation in the last year or two. In 2007 the three largest private mortgage providers held about 35% of the market, while through the second quarter in 2009 that share had grown to about 50%, according the WSJ's estimate. That rapid growth has pretty much come at the expense of the independent home loan lender. The regulators in Washington see the dangers of this trend and are now working to reverse it.

This is good news for the smaller, independent mortgage firm. It may never get back all the market share it previously had, which was somewhere over 60%, but it can possibly recover some of it. Yet, the main beneficiary actually will be the consumer. The more there is competition, the more choices he has at the lowest possible price.