After being largely absent from the market for four years, Pacific Mercantile Bancorp of Costa Mesa, Calif., said it is getting back into the business of originating mortgages for sale in the secondary market, both in the wholesale and retail channels.
In 2005 the company quit the wholesale channel, where its strategy was to sell loans to investors in the secondary market. It kept a small retail operation for its customers, but only as a portfolio lender.
At that time Raymond E. Dellerba, Pacific's president and chief executive, said the wholesale business had been good for the company when the economic slowdown caused by the dot-com crash and the 9/11 attacks led to declines in commercial loan demand. But by mid-2005, Pacific Mercantile was experiencing steady growth in the commercial loan business and wanted to deploy capital there, he said.
Now the opposite is happening — Mr. Dellerba said this month that commercial lending demand is expected to be flat this year and possibly beyond.
"As prices for homes begin to stabilize and the economic recovery begins," he also expects increases in home purchase volume and demand for residential mortgages. "Additionally, we believe that the credit quality of prospective borrowers will be much improved, because credit underwriting standards are being tightened, and subprime and other high-risk mortgage loan products have been discontinued."
The mortgage business now "provides us with an opportunity to increase our revenues and profitability," Dellerba said.
Initially, Pacific Mercantile will offer government and conforming single-family loans, which it will fund through brokers, he said. Next quarter its retail lending arm will start making loans for sale in the secondary market.