Even before the government-controlled Ally Financial threw its mortgage division into Chapter 11 bankruptcy protection, rumors were circulating this spring that the "bank" end of the company would exit the warehouse lending arena.
Back then warehouse executives were salivating at the prospect of increasing their already overflowing pipelines — and now that Ally has made it official, many firms are hoping to benefit from the bank's misery.
"We've had customers approach us who are losing Ally as a provider," said David Frase, president of warehouse lending for the privately held Southwest Bank, Fort Worth, Texas. "We have a couple of applicants already who were banking with Ally."
Paul Best, who runs warehouse lending for People's United Bank of Bridgeport, Conn., also has seen applications increase. "We're getting inquiries from quite a few of Ally's clients," Best said. "Quite a few of these were firms that we were already sharing with Ally."
Best said he's not allowed to discuss People's numbers publicly but those familiar with the bank's efforts say over the past 30 days it has gained at least $75 million worth of new lines because of Ally's exit.
Of course, the decision by the bank to leave the business — which came early last week — is hardly surprising. A bank spokesman said Ally will exit warehouse finance over the "coming months" because it "has become a less strategic part" of its business.
Then again, mortgage banking overall has become less essential for Ally. The bank holding company is 74% owned by the U.S. Treasury Department which has pumped upwards of $16 billion into the company.
Treasury's initial plan was to stabilize Ally and its Residential Capital Corp./GMAC residential finance division and take the entire company public via an initial public offering in 2011.
When losses — and buyback woes — continued to plague ResCap, Ally decided to toss ResCap overboard entirely. A "normal" sale became impossible thanks to ResCap's legacy woes and worries about future buybacks. So two months ago it engineered a sale/prepackaged bankruptcy of ResCap to Nationstar, a specialty servicer with willing investors who believe ResCap's $370 billion of MSRs are worth a lot more than the market is willing to pay.
But even though Nationstar wants ResCap's MSRs — as does Ocwen — it doesn't covet its warehouse division, which isn't surprising. Nationstar is a nonbank, owned (in part) by another nonbank (Fortress Investments). In general, nonbanks are nonplayers in warehouse finance.
Even though ResCap is in bankruptcy, Ally Financial is not. But the odd thing about the exit is that warehouse lending is the most profitable it's ever been. Why leave a great business?
"Warehouse lending executives are a happy bunch these days," said Larry Charbonneau, who heads a consulting boutique called Charbonneau & Associates. "If you're not making money today, you're doing something wrong."
Charbonneau and other executives who play in the space estimate that the usage rate on commitment volumes is nearing an all-time high of 70%. In normal times usage rates are between 40% and 60%.
The good news for Ally's warehouse clients is that unless they are undercapitalized they should have no trouble finding willing banks ready to lend them credit.