A growing number of community banks are entering the warehouse lending arena for two obvious reasons: the returns are good and it appears the risks are low, at least for now. In general, underwriting standards are so tight that the probability of a loan default is the smallest it's been in decades.
The latest entrant to warehouse lending is Southwest Bank of Fort Worth, Texas, which a few months bank hired industry veteran David Frase to get the depository's new division off the ground.
Until last August, he had been in charge of warehouse lending at Southwest Securities FSB, Dallas, a publicly traded institution. (Despite the similar names, the two institutions are not related in any way.)
Southwest Securities actually began de-emphasizing warehouse lending late last year when the bank ran into capital problems due to larger-than-expected losses on its commercial real estate portfolio. Its warehouse unit was profitable, but still, the bank needed to shrink quickly, so warehouse lines were trimmed down and customers were let go.
Frase left the company and began working as a consultant for awhile before being hired by the Fort Worth bank.
As this edition of National Mortgage News went to press, Southwest was on the verge of making its first warehouse line. “It's going to happen very soon,” Frase said. “Maybe in a few weeks.”
But the bank isn't exactly going after the typical warehouse customer base, which targets nonbank mortgage firms. According to Frase, who serves as a senior vice president at the $900 million community bank, its target audience is what he calls “emerging” or “mini-correspondents.”
In general, these are small brokerage firms that have takeouts already lined up with third-party secondary market investors. “The minimum capital size they need to bank with us is $50,000,” Frase explained. “We'll be looking to that investor takeout.”
Overall, he estimates that his customer base will have net worth positions ranging from $100,000 to $150,000.
Initially, Frase and his chief credit manager, Jason Gillespie, will focus on mini-correspondents based in Texas.
“These are companies that employ four to five or so people,” he said. “Right now, this is a market that no one is serving much. We think this business has room to grow.”
