Christmas has come a little early this year for warehouse lenders, thanks to Bank of America's planned exit from correspondent lending.
Of course, correspondent lending doesn't always intersect with warehouse finance, but in the case of Bank of America it certainly does—and in a major way.
Since taking over Countrywide Financial Corp. three years ago, B of A has built its correspondent acquisition business on the basic tenet that not only will it buy the loan production from nonbank funders, it would be more than happy to lend them money.
In some cases B of A has insisted that as a condition for making a line of credit that the borrowing firm sell most of its production to the bank through “captive arrangements.”
Late this summer, when B of A first told the world that it would jettison its correspondent platform, the first question that came to the mind of the bank's warehouse borrowers was this: What does this mean for me?
In the ensuing weeks, a handful of warehouse executives—asking that their names not be disclosed—have admitted that yes, they're courting B of A's warehouse customer base, some aggressively.
“We've received a lot of applications from their customers,” said one East Coast warehouse lender. “There's a lot of customers out there who are scared of being shown the door by them.”
When asked if his bank was openly courting B of A's customer base, he replied, “Yes. It means more business for us.”
Another executive said, “Our phones have been ringing ever since” the announcement was made. A Texas-based manager added, “The sharks sense there's blood in the water.”
B of A has rarely discussed its warehouse business with the trade press, including this columnist. It's generally believed that at June 30 the bank had $12 billion in commitments—with at least half of that amount being drawn upon. According to figures compiled by National Mortgage News, B of A ranks first in both commitments and outstanding loans.
Wells Fargo ranks second with about $4 billion. (Wells, too, will not release its warehouse volumes. The $4 billion figure is an estimate.) What do both Wells and B of A have in common? Answer: They also rank first and second, respectively, in terms of correspondent buyers. And both have built their third-party programs (in part) by linking correspondent and warehouse.
It's always possible that if, and when, B of A sells its correspondent group the buyer might also purchase all or part of the warehouse business. But at this point few expect that to happen.
As reported on the National Mortgage News website a few weeks back, Nationstar Mortgage, Lewisville, Texas, is eyeing the correspondent unit, but likely won't take on the warehouse business. (Nationstar is controlled by Fortress Investment Group, a nonbank whose stock trades for just $3 a share.)
“I'm not sure Nationstar is big enough to take on the warehouse group,” said Michelle Perrin, a consultant who runs the California-based Perrin & Associates.
Perrin believes that any current warehouse customers of the bank should be shopping around for backup lines if they haven't done so already.
It's been estimated that between 175 and 300 nonbanks are customers of B of A's warehouse group. “I think 60 of those could be absorbed by other lenders very easily,” she said. “Some may have a hard time finding a new home. They should be looking now.”
Meanwhile, there's increased speculation that in time the bank might transfer its larger warehouse customers over to its investment banking arm over at Merrill Lynch. What does B of A have to say about all this? As usual it wasn't commenting.
