A year ago the future looked somewhat bleak for home builders' mortgage banking units: new housing starts continued to crumble and their originations were in the tank, big time.
Although no one expects that home builders such as NVR, Pulte Homes and Ryland Homes are poised for a significant boom anytime soon, it now appears their mortgage banking divisions have turned the corner.
According to origination figures compiled by National Mortgage News for its Quarterly Data Report, four out of the five home-builder-owned mortgage lenders that rank among the top 60 nationwide showed a sizeable increase in originations during the second quarter.
The gains come at a time when most top funders saw loan volumes decline in the second quarter, compared with a year earlier.
In the second quarter, the nation's largest home-builder-owned lender, DHI Mortgage of Austin, originated $1.38 billion in one-to-four family loans, a 54% year-over-year jump.
D.R. Horton, its parent, is based in Fort Worth, in a state that boasts one of the strongest housing markets in the nation.
NVR Mortgage saw its second-quarter fundings spike by 45%, while Pulte Mortgage fared even better, increasing originations by 65%.
Only one lender among this group of five, K&B Mortgage of Woodland Hills, Calif., had a decline.
In the second quarter of last year all of these lenders had double-digit percentage declines in originations, while the rest of the home lending industry was booming by feasting on refis.
Executives at these lenders declined to talk about their numbers or return telephone calls. All are subsidiaries of publicly traded builders.
Although the units themselves wouldn't comment, warehouse consultants and mortgage banking analysts that work with these lenders confirmed that conditions are improving.
Michelle Perrin, who brokers warehouse lines, said she recently began negotiating a new line of credit for a privately held mortgage banker owned by a builder. She couldn't name the lender, citing client confidentiality, but said the unit has five warehouse providers willing to extend the lender a new credit line.
"It's a nonpublic firm, and they have $21 million of capital on their books," Perrin said.
"This thing could even turn into a bidding war."
Few mortgage bankers that are owned by builders service the mortgages they originate, opting instead to sell their loan production "servicing-released" into the secondary market.
Over the past year servicing-released premiums have increased nicely, adding to the profitability of these lenders.
One investment banker who has worked with builder-owned lenders said he recently analyzed the books of a Pennsylvania funder and liked what he saw.
He declined to name the lender, but described it as "very profitable," despite lower production compared with a few years back.
These analysts and investment bankers expect that if and when home building picks up a real head of steam, lending subsidiaries could benefit greatly along with the parent company.