Rick Thompson, a 30-year industry veteran, wants to make Envoy Mortgage, the small but growing Houston nonbank originator he bought into 18 months ago, into a "middle tier" lender — one that ranks between 10th and 50th nationwide.
To get there, he said, Envoy will need additional capital — and a banking charter.
"We're looking to buy a bank or affiliate with one," Thompson said. "I've been looking at a lot of banks these days but we're not quite there yet."
Thanks to the shortage of warehouse lines in the industry, being small these days puts nonbanks of all sizes at a major competitive disadvantage, he said.
"Smaller firms are definitely having a tougher time getting warehouse lines. There's a fear about buyback requests," Thompson said. "And then there's the cost of compliance — it keeps going up."
Thompson is not the only nonbank executive toying with the idea of getting his hands on a depository. Rumors abound that all sorts of former nonbank executives are lining up to buy depositories for the simple reason that they want a reliable source of funds (deposits) to fund and service residential mortgages.
One West Coast nonbank servicing executive said recently that he's been looking at dozens of banks in California but so far has not found a small to midsize depository that he can get comfortable with.
"A lot of them have commercial [real estate] loans that are ready to explode," he said.
Envoy has firsthand experience with the warehouse challenge.
"Three months ago our warehouse providers were Colonial, Guaranty and National City," Thompson said. In case you've been living in a cave, Colonial Bank of Montgomery, Ala., once the nation's largest warehouse provider, failed this summer; so did Guaranty Bank of Austin; National City Bank is now a part of PNC Financial Services Group Inc., a banking company known for its distaste for the residential mortgage business.
However, Thompson said, PNC is continuing to extend credit to Envoy, and BB&T Corp., which bought most of Colonial from the Federal Deposit Insurance Corp., "has picked up our Colonial line."
Moreover, Envoy has doubled its roster of warehouse lenders to six. And business is booming at the 50-branch retail-only lender. The company expects its production to total $2 billion this year, a 189% gain from last year.
All of its originations are eligible to be purchased or guaranteed by Fannie Mae, Freddie Mac or the Federal Housing Administration. Most of Envoy's loans are sold on a servicing-released basis, but the company one day hopes to service its own originations. The company is a Fannie seller/servicer and is waiting on final approvals from Freddie and the Government National Mortgage Association.
Thompson made his name in the industry by managing Troy & Nichols of Monroe, La., and then later at Aegis Mortgage of Houston. (He left Aegis in 2006, a year before it filed for bankruptcy protection. He's declined to talk in detail about Aegis' majority owner, Cerberus Capital, but he's made it clear in past interviews that he and the hedge fund's upper management did not see eye to eye. Aegis was a Fannie/Freddie/alternative-A lender that made occasional forays into subprime.)
When Thompson bought a controlling interest in Envoy with an eye toward molding it into a national lender, people thought he was crazy. "I was told this wasn't such a good idea," he said. "The industry had blown up, especially the middle-tier firms."
But Thompson said he believes that in time a new middle tier will rise from the old one's ashes.
"We believe the middle tier will be reconstituted," he said.