Warehouse lenders still feel mostly optimistic about their prospects for the remainder of the year, but a recent spike in rates is something that could throw ice water on their outlook.
“Our little November-to-January surge that lasted into February is starting to get tired,” lamented Jerry Davis, senior vice president of ViewPoint Bank, Littleton, Colo. “Volumes are starting to taper off a bit.”
Davis and other warehouse managers interviewed by National Mortgage News note that commitment volumes have increased steadily over the past few months—thanks to both low interest rates and nonbanks seeking additional lines in the wake of Bank of America severely cutting back its presence in the market.
Warehouse providers, of course, make their living off of residential fundings. The stronger the primary market—the better they do.
According to survey figures compiled by NMN and the Quarterly Data Report, all warehouse banks had outstanding commitments of $30.8 billion at December 31, a slight decline from the same period 12 months earlier. Many firms gained business thanks to B of A cutting back, and are not shy to admit it—but don't want their names attached to any quotes.
B of A, as a practice, does not disclose its commitment volumes, but this newspaper estimates that it had just $4.1 billion at yearend, a 60% decline over 12 months. (The bank is in the throes of shifting the business over to its Merrill Lynch affiliate, while limiting its clients base.)
At the end of 4Q, Wells Fargo ranked first among all warehouse providers with $5.1 billion of commitments, a 7% improvement year-over-year. (Wells' figure is an estimate. Like B of A, the bank typically does not disclose that data point.)
Like many large warehouse banks, Wells extends credit and then buys closed loans from the nonbanks it finances.
B of A ranked second, followed by First Tennessee ($2.3 billion/up 15%); BB&T ($2.1 billion) and JPMorgan Chase ($2.1 billion/up 11%). No year ago figure was available for BB&T.
Jim Reynolds, a warehouse consultant who manages The Reynolds Group, said he continues to see new entrants to the business and counts roughly 80 warehouse providers, many of which are regional banks. “The warehouse business is alive and well,” said Reynolds.
Davis of ViewPoint is a bit more cautious. “I worry that some banks might loosen their [warehouse] standards and start relaxing net worth requirements.”
David Frase, president of warehouse lending at Southwest Bank, Dallas, remains optimistic. “The exciting thing we're seeing is a growing list of takeout investors to the space,” he said. “We're amazed at the quality of loans we're seeing.”
