Unlike your average warehouse lender, Thomas R. Yenne, senior vice president of Guaranty Federal Bank, Dallas, is still getting lots of calls this year.
While his brethren at other institutions that provide credit to mortgage bankers are sighing over the decline in outstanding loans and waving goodbye as good clients get bought up by banks, Mr. Yenne has a secret weapon: He buys jumbo adjustable-rate mortgages.
And not just any adjustables. He offers to buy loans tied to the 1 lth District cost of funds index (COFI), a model with the type of low teaser rates that mortgage bankers are climbing over each other to be able to offer.
The catch is that Mr. Yenne, though he is sometimes loath to admit it, works for a thrift. "I like to think of myself as a commercial banker;' he says.
But working for a thrift means that the slow-moving COFI rate matches his institution's cost of funds fairly well, allowing it to buy loans from mortgage bankers that can compete with the pricing offered by savings and loans.
Guaranty Federal Bank is on a pace to buy $1.2 billion of jumbo adjustable rate mortgages this year, up from only $300 million in 1993.
That provides a nice counterbalance to its warehouse lending activity. Through its mortgage investment group, Guaranty Federal Bank has commitments of $800 million to about 30 clients.
Warehouse lending was a booming business last year, when dropping rates get of a refinancing boom that taxed the limits of credit at most mortgage .banks. Whereas loan outstandings reached a level of $600 million in 1993, according to Mr. Yenne, it has plummeted this year, and now stands at about $200 million. "Our lines of business are a nice natural hedge for each other," he said.
Guaranty Federal is a Southwest Plan thrift, created in 1988 out of the wreckage of the Texas thrift industry. Because lending was at a low ebb at that time, most of the bank's assets were sunk into mortgage-backed securities. But as those mature or prepay, the bank will use the capital to buy whole loans. "We plan to buy $1 billion of mortgages next year," he said.
Of course, everything hasn't always been smooth going for Guaranty Federal. Buying loans was something of a sleepy sideline last year when fixed-rates were the rage. But when rates rose last winter and spring, suddenly Guaranty's programs, especially COH, were red hot.
The bank was flooded by loans from mortgage banks to which it had issued commitments, forcing it to step back from the market temporarily. "We don't have unlimited appetite. We had to stop selling commitments," said Mr. Yenne.
This caused some hard feelings among mortgage bankers, who were eager to find pricing to compete with banks and thrifts. Guaranty Federal did have to stop selling commitments for a time. "We were able to honor all our commitments," said Mr. Yenne.