The happiest professionals in all of mortgage banking today may very well be warehouse lending managers.
In short, business is wonderful: not only are commitment volumes strong, but the collateral is pristine, and nonbank customers are asking for healthy increases in their
In compiling our results for the second quarter, I didn’t run into one warehouse executive or advisor who didn’t feel ebullient about the coming quarters. Yes, there have been concerns that the refi boom would eventually peter out, but thanks to the Federal Reserve’s QE3 initiative it appears that the boom times for originators and their warehouse banks will last well into 2013.
As one analyst put it: “I think October might turn out to be one of the best months of the year [in terms of loan] volume.”
Larry Charbonneau of Charbonneau & Associates, which conducts due diligence reviews on nonbanks, is almost speechless when he talks about mortgage profitability these days. “A lot of firms are making so much money right now,” he said. “It’s unreal.”
Texas-based Charbonneau could not identify any of his audit assignments by name because of confidentiality clauses, but noted that some originators are generating pretax profits of 60 to 120 basis points per loan.
Jerry Davis, who runs warehouse finance at ViewPoint Bank, concurs. “Everybody’s profitability is through the roof,” he said.
As for ViewPoint, usage on that bank’s lines is in the mid-70% range. Normally it averages 50% to 55%.
ViewPoint’s maximum warehouse line to one client is $35 million, but in one case the bank hiked it to $45 million. Davis is even beginning to see evidence that the warehouse syndication market might be coming back.
For now, there appears to be no capacity problems whatsoever with obtaining warehouse credit, that is, as long as a mortgage banking firm has at least $2.5 million of net worth. During the industry’s dark days of 2008-2009 warehouse credit became so scarce that the industry lobbied the Government National Mortgage Association and the GSEs for relief, winning certain concessions on the turning of lines.
In general, almost every warehouse bank active in the business showed a strong growth in commitments during the second quarter with the notable exception of Bank of America, which trimmed its business and transferred what’s left of it over to its Merrill Lynch affiliate.
B of A, which ranks second in commitments, ended June 30 with $3 billion in contracts, a 78% plunge compared to the same period a year earlier. Until earlier this year, B of A cross-marketed warehouse lines to its correspondent-selling mortgage banking clients. But then the bank made a strategic decision to exit correspondent lending.
Wells Fargo, which maintains a strong presence in correspondent acquisitions, ranked first among warehouse banks at June 30 with $7 billion in commitments. (The figures for both Wells and B of A are estimates culled from interviews with competitors. Both declined to answer NMN’s quarterly survey on warehouse lending.)
First Tennessee Bank ranked third with $2.7 billion in commitments, a healthy 42% increase year-over-year.
With the exception of Wells, the nation’s top 10 showed commitment growth rates ranging from 13% to 123%.
In other words, the market looks quite good, though warehouse executives did note one interesting trend: there have been very few new players entering the business the past two quarters. “New players?” asked one East Coast-based manager. “I think anyone who’s really wanted to get in this business is already in.”
