Just how healthy is the warehouse lending business today? The answer boils down to this: If you can't obtain a line of credit in the current market, then something must be wrong with your shop.
That might sound like an over-simplification of the current situation, but as most nonbank lenders might agree: credit is plentiful—and despite the fact that Bank of America, once the largest provider of lines, has more or less exited the sector.
"There's a great deal of liquidity out there today, and banks are willing to expand current lines" said Larry Charbonneau, who runs a Houston-area consulting firm called Charbonneau & Associates.
Charbonneau, who conducts due diligence reviews on nonbanks for various clients, maintains the "usage rates are at an all-time high" and "pipelines are getting full."
Michele Perrin, who serves as a broker of sorts between nonbank mortgage funders and warehouse banks, mostly agrees with Charbonneau, noting that new entrants continue to enter the space, adding capacity to the business. But Perrin cautions that these new players—and existing ones—"are not looking for just any customer, though."
Some warehouse lenders are actually tightening requirements. "For instance," Perrin said, "one of the biggest warehouse lenders told me recently that they are looking for new customers with a minimum net worth of $5 million when they used to be happy with $2 million. And it is still difficult to get a line if you have had losses or are fighting repurchase requests."
She also cautions that up until recently few warehouse firms "would allow loans on their lines to be sold to an investor who wasn't a very large bank, but lately we see new entrants into the correspondent business like Stearns Lending being approved by the warehouse banks."
Perrin said this is "good news" for mortgage bankers because it allows firms to access more outlets for their loans.
Every quarter Origination News and National Mortgage News survey 30 different warehouse firms, asking for commitment volumes, and outstandings.
It's believed that upwards of 70 banks are now in the space in one fashion or another, but many are regional and community depositories that only lend in their footprint.
Wells Fargo & Co. tends to the lead the pack because of the tie-in with its correspondent business. (Wells does not disclose any information on its warehouse business, but at yearend its commitments were north of $5 billion, according to competitors.)
Although B of A has scaled back its warehouse business and transferred most of it to its Merrill Lynch affiliate, it has outstanding commitments of roughly $4.1 billion.
Rounding out the top five are First Tennessee ($2.4 billion), Branch Banking & Trust ($2.1 billion) and JPMorgan Chase ($2.1 billion.)
ON/NMN collected commitment volumes on 13 firms, totaling $22 billion at yearend, just about flat compared to yearend 2010. However, B of A's volume fell by 60%, while most others gained business and market share. Only one nonbank warehouse firm is represented in the numbers: NattyMac. (Volumes given to us by eWarehouseOne could not be verified and were excluded.)
Almost all of the production being funded today is sold to either Fannie Mae, Freddie Mac, or guaranteed by FHA with the exception of private market jumbo loans.
Warehouse credit for alt-A or nonprime is virtually nonexistent with no sign of a revival coming any time soon.
