PNC Bank Corp. plans to quit mortgage warehouse lending, according to people familiar with the situation.
A spokesman for the Pittsburgh-based banking company denied last week that it plans to shut its warehouse operation in Louisville, Ky. But well-placed sources said they expect that PNC will make it official after notifying employees, which could happen this week.
Warehouse lenders supply interim financing while mortgage banks wait to sell loans in the secondary market. The lines are usually secured by mortgages held for sale. Such arrangements are often the lifeblood of small home lenders that have neither the deposits to fund their loans nor the credit ratings to borrow on an unsecured basis.
National Mortgage News, a sister publication of American Banker, ranked PNC fifth in this activity, with $2.7 billion of commitments at yearend 1998.
In April 1997, when the subprime lending market was hot, PNC was part of a syndicate of 22 banks that extended an unsecured, $850 million line of credit to United Companies Financial Corp., a Baton Rouge, La., company that specialized in making loans to consumers with poor credit histories.
In 1998, however, the subprime sector was clobbered by unexpected prepayments, which hurt lenders' profits, and by the autumn liquidity crisis, which shut off the securitization market, a key outlet for subprime loans.
In March of this year, United Companies filed for bankruptcy protection. By then, PNC had sold its $25 million piece of the credit line, but industry sources say it took a hit on the sale.
Subprime lenders are not the only warehouse borrowers to have experienced problems lately.
In June, PNC participated in a $500 million warehouse line for Harbor Financial Mortgage Corp., a unit of FirstCity Financial Corp. In mid-September, FirstCity said it was in default on its warehouse line, and though the lenders continued to provide funding, they had not waived any defaults.
PNC began to downsize its warehouse lending group this year. In the second quarter it cut staff by about two-thirds, to 30 people.
"There has been no decision to exit this business," a PNC spokesman insisted last week. He said that over the last six months the bank has terminated relationships with some customers whose warehouse lines were less than $10 million each.
Other mortgage companies -- most of them in the subprime market -- have caused problems for warehouse lenders in the last year, despite the low-risk reputation of this specialty.
"It's been an unusual year in terms of the industry and losses," said one warehouse lender at a competitor of PNC, speaking on condition of anonymity. "Historically, lending to mortgage bankers and taking losses were mutually exclusive."
