The plan by Countrywide Mortgage Investments to beef up its capital through a secondary offering of seven million shares marks the start of a new drive into warehouse lending.
"We want to raise capital to fund the expansion of both our warehouse lending and our conduit programs," said Mike Perry, president of the Pasadena-based real estate investment trust.
Countrywide Mortgage is a major player in the conduit business, but heretofore has made less than 25 mortgage warehouse lines.
Such lines are used by mortgage banks to fund loans that have been closed but not yet sold to investors.
Niche Picked Out
Countrywide Mortgage Investments will specialize in extending credit to small and medium-size mortgage banks. "We intend to concentrate on companies with net worths of $300,000 to $5 million and to provide loans of between $1 million and $20 million," said Mr. Perry.
The two-year-long refinancing boom has greatly increased the need for credit in the mortgage industry, a need that is especially acute among smaller companies that are of little interest to most commercial lenders. This, in turn, has attracted new providers of credit to the small market.
Because lower-end mortgage banks receive little or no financing from the investment banks that are a big source of funding for large companies, lending rates in that market have remained hefty, according to Richard Peterson, vice president of Norwest Bank Minnesota.
"Loans to companies with net worths below $1 million are based on prime, and are usually prime plus something," he said.
Expert Opinions
Countrywide, for its part, believes it is admirably suited to evaluate mortgage banks. "We have the experience to evaluate credit risk and underwriting procedures, and we would also be in a good position to dispose of assets if that was necessary," said Mr. Perry.
All loans that Countrywide Mortgage Investments makes will be reviewed by senior officials of Countrywide Funding.
One of the real estate investment trust's strongest motivations for warehouse lending, said Mr. Perry, is to strengthen ties to mortgage banks that feed loans into the conduit.
In this way Countrywide will be taking. a similar approach to that of Wall Street firms. For the past several years, investment banks have provided various types of repurchase agreements to mortgage banks with which they do securities business.
Besides warehouse lending, Countrywide Investments, which trades separately from Countrywide Credit Industries, will use the proceeds of the offering - about $65 million gross - to fund the expansion of its conduit business.
The conduit bought more than $400 million of loans in October. In addition, the capital will give the company more freedom to hold subordinated mortgage securities.
The offering will be managed by Merrill Lynch & Co. and co-managed by Alex. Brown & Sons Inc., PaineWebber Inc., and Dean Witter Reynolds Inc.
