A year ago most mortgage warehouse lenders had their nonbank customers over a barrel when it came to terms on new lines of credit. The warehousers' profit margins were steep and most nondepositories were happy just to have a lender.

Today, the terms aren't a whole lot better, but mortgage bankers are resting a bit easier for two main reasons: more banks are entering the warehouse sector, and commitment volumes are on the rise.

According to figures compiled by National Mortgage News, warehouse commitment volumes were $31 billion at the end of March, a 20% increase from a year earlier. (In calculating its numbers, National Mortgage News assumes it has captured 70% of the market.)

Bank of America Corp. is the presumed market leader, with $15 billion of commitments at March 31. The Charlotte company declined to confirm or deny the figure, which is based on comments made by a Bank of America warehouse official at a Texas Mortgage Bankers Association meeting this spring.

But Bank of America is certainly a leading correspondent buyer of mortgages, and it offers warehouse lines to nonbanks that sell loans to it. In fact, most top correspondent buyers of mortgages — B of A, Wells Fargo & Co. and JPMorgan Chase & Co. — offer some type of warehouse program, but none would talk about their programs publicly.

According to advisers like Michele Perrin and Larry Charbonneau, more community banks are eyeing the warehouse market because the profit margins are strong. Last week Associated Banc-Corp. of Green Bay, Wis., made the decision to expand its regional warehouse program into a national one.

"They want to grow this effort significantly," Charbonneau said.

Currently, Associated makes warehouse lines of credit available only to nondepositories in Illinois and Wisconsin. Matt Wolfe, an officer at the bank's office in Chicago, has been put in charge of the national effort.

Perrin said she is working with a new warehouse lender that wants to commit $1.8 billion to the business this year. The bank, which Perrin declined to name, will not buy the loans it warehouses, and it will provide credit on a 20-to-1 leverage basis.

Perrin also has a Michigan bank client that is looking to make 30 new warehouse facilities this year. Both clients are relatively new to the warehouse business.

Despite strong signs of new activity in the warehouse arena, not all the news is good. PNC Financial Services Group Inc. is putting the finishing touches on winding down the warehouse business of National City, a bank it acquired 18 months ago.

PNC also pulled the plug on Red Capital Group's warehouse business late last year. (A few weeks ago the Pittsburgh banking company sold Red Capital to Orix USA, a financial service provider whose parent company is based in Japan.)

There is a tinge of irony in all the new warehouse activity: it comes at a time when overall origination volumes are declining in the primary market, which means the need for warehouse credit should be falling.

"The good news is that warehouse capacity is starting to meet the needs of nonbanks," Perrin said. "But it's coming at a time when I'm starting to hear stories of firms saying they're 'overbanked.' Still, it's good to see new entrants getting into the business."

David Lykken of Mortgage Banking Solutions in Austin said his consulting firm has helped three banks start their own warehousing programs.

"They are not the biggest warehouse lenders in the world, but we are helping them get the business up and running," Lykken said.

One such client is Northpointe Bank of Grand Rapids. Lykken helped the depository establish its program and assisted in picking the executive who is managing the effort.

Community banks of various sizes or the "banks that bank other bankers," Lykken said, are the ones entering the sector. "The good news is there is capital flowing back into warehousing," he said, describing his feelings about the business as "cautious optimism."

Bob Rubin, principal of Business Loan Connection in Southfield, Mich., said he knows of at least three new players. "However, there are strings attached," he said.

Like Lykken, Rubin is seeing community and regional banks stepping in, but these lenders are charging what might be considered steep prices (historically speaking) for credit.

Many of these new players also are reunderwriting each loan file, and in some cases they are rejecting mortgages that already have an end investor in the secondary market.

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