The rapid consolidation in mortgage banking is hitting hard at the banks that lend to the industry.
Demand for "mortgage warehouse" lines of credit, which are used to fund loans awaiting sale into the secondary market, is down sharply, bankers say.
This type of lending boomed in the last two years, as a bulge in refinancings caused a rapid expansion in the need for mortgage banking credit.
But 1994 has been a difficult year for warehouse lenders.
Not only are mortgage banks drawing on their lines of credit less, but many of them are being bought up by banks that can fund loans with deposits.
"Warehouse demand is way, way down this year," said Norman P. Bagwell, the vice president in charge of the mortgage finance group at Bank One Texas.
By his estimate, outstandings in Bank One's portfolio of warehouse lines have fallen by about 45% from the peak last year.
Some warehouse lenders say the declines have been even sharper. "Outstandings have dropped off the table. We are down 90%," said an executive who did not wish to be named.
Many of the biggest borrowers are suddenly owned by banks.
American Residential Mortgage borrowed $1.18 billion from a syndicate of 23 lenders last fall, a hefty increase from its earlier deal.
Likewise, Margaretten & Co. lined up a $1.3 billion credit in the spring.
Both of those deals were scrapped when the companies were purchased by Chase Manhattan Bank and Chemical Banking Co., respectively.
"Investment bankers really took a lot of our business away," said a disappointed lender.
And it's not just the largest deals that am going away. Several smaller mortgage banks, including First California and Medallion Mortgage, are currently on the block considering a deal. While not all of the companies are likely to be sold, it seems clear that some of the loss in demand for warehouse credit may be a loss for good.
Some bankers think that this will lead to a consolidation in the ranks of warehouse lenders as well.
Several large foreign banks, attracted by the boom in demand and the relatively high margins, entered the field in the last five years.
"I think some of those who came in recently will be the ones who get shaken out," said a lender.
Meanwhile the more established lenders, such as Bank of New York and First Chicago, are hunkering down to wait out the bottom of the cycle.