The outlook for warehouse lending appears to be picking up.
The most surprising development is an acknowledgement by the Mortgage Bankers Association that large banks, increasingly, are opening up the warehouse spigot for some of the trade group's nonbank members. This is a big change from last year when the MBA and other industry groups were urging the Treasury Department to provide some type of government support for warehouse lending.
Moreover, warehouse executives interviewed in recent weeks said existing lines are being renewed with an increase in borrowing capacity. At least two firms are planning to enter the sector. And PNC Financial Services Group Inc. is seeing renewed interest from potential buyers of the warehouse unit it inherited with its 2008 acquisition of National City Corp.
Larry Charbonneau, a consultant based in Houston, has been trying for the past year to convince regional banks that warehousing is an attractive business. He has persuaded some of them to fund nonbank lenders that operate in their retail banking markets.
MetLife Inc.'s Irving, Texas, home loan unit is leaning toward entering the warehouse field and correspondent lending. (Some warehouse lenders offer financing to nonbanks, but only if they agree to sell their production on a correspondent basis.)
Impac Mortgage Holdings Inc., a former alternative-A giant that is rebuilding its business after restructuring its balance sheet, also plans to re-enter the warehouse business. However, Impac's focus will be on smaller lines in the range of $5 million to $50 million, said one warehouse adviser familiar with its plans. (Before the subprime/alt-A meltdown, Impac was an active warehouse provider.)
Meanwhile, many nonbanks are curious about the future of the Nat City warehouse group, which has about $1.2 billion in commitments, second only to BB&T Corp.
Sources close to Nat City said three investors are continuing to look at the operation, including an Australian bank, a U.S. depository institution and a private-equity firm. PNC has declined to talk about suitors for the business, saying it eventually will leave the business.
Another encouraging sign: Perrin & Associates recently brokered a $245 million warehouse facility to a nonbank residential lender that is funding $1 billion a month in new loans.
Michele Perrin, who runs the company that bears her name, said she could not identify the warehouse provider or the client. Perrin, a former warehouse executive at Washington Mutual Inc. who also worked at Impac, has brokered about seven lines and is working on a few more.
Warehouse lending to nonbanks began to dry up in earnest during the fall of 2008 when Lehman Brothers filed for bankruptcy. By then, several Wall Street firms that had been making "gestation repos" (a type of warehouse facility) had backed away from the nonprime and alt-A sectors.
Over the past year, some warehouse providers, including JPMorgan Chase & Co., would not finance any originations that were sourced through loan brokers. The Treasury Department — after listening to the pleas of the MBA and other trade groups — seriously considered several options to intervene in the warehouse market, but ultimately passed.
The MBA continues to keep Treasury officials apprised of the market. It is now saying a Treasury solution may not be necessary at this time.
In the fall, Fannie Mae and Freddie Mac launched programs allowing smaller lenders to increase their origination capacity by purchasing individual loans instead of pools. This lets sellers/servicers get cash immediately after closing a loan, allowing them to turn around and originate more loans. Previously lenders had to wait a month or more for the mortgage-backed securities transaction to settle.
In October, Freddie started a pilot program where it provides a warehouse lender with a standby purchase commitment.