Warehouse credit has loosened up significantly over the past year with plenty of new lines being written—but mostly for firms that have a liquid capital position north of $2 million.
According to interviews with warehouse lending executives, consultants and nonbank borrowers, the catchword for the market is cash. "Lenders want to see plenty of liquid capital," said Michelle Perrin of Perrin & Associates, Irvine Calif. "They don't want any noise on the balance sheet."
Perrin, who brokers warehouse lines for originators, said there continues to be a strong emphasis on the ability of funders to repurchase problem loans—hence, the call for strong capital.
She added that one of her clients (who she could not name) had a home with $1 million in equity but was not allowed to count the money toward the company's capital position. "They don't want to see real estate," Perrin said.
Some lenders will allow real estate to be counted toward net worth, but place firm caps on how much. (Caps can range from 25% to 50 %.)
Also, warehouse providers, including the nation's megabanks, as well as many regional depositories that have jumped into the market (or expanded) over the past year, continue to show a strong preference for originators that have little or no wholesale. "They all want retail," said one consultant.
Glen Corso, managing director of The Community Mortgage Banking Project, a small trade group that represents many firms that lend but do not service, said loan terms "are much better than they were a year ago," adding that his members are beginning to benefit from new entrants to the market.
One warehouse executive, requesting his name not be used, noted that competition for clients is particularly strong among nonbanks with $10 million or more of net worth. "Those are the type of shops that everyone wants to lend to," he said.
The executive noted that firms with $2 million to $5 million in capital are the ones "coming under the most pressure—but that's a market that the new entrants seem to be targeting."
