Eighteen months ago it appeared warehouse credit was drying up, with nonbanks paying dearly for lines — if they could find them.
But the tables may be turning in favor of nonbank borrowers. Several regional banks have entered the warehouse space, offering better terms and more liberal financing, at a time when originations are coming under pressure. In short, borrowers are in a better position.
"I'm working with a number of [nonbank] clients who are looking for ways to reduce their warehouse costs," said Michele Perrin of Perrin & Associates, an advisory firm based in Irvine, Calif.
She said that in "renegotiations" with their bankers, some of her clients are being offered lines on jumbo loans and "no-strings-attached deals," in which warehouse providers extend credit only if the primary originator agrees to sell a majority of its production to the financier. Also, some of her clients are consolidating lines, canceling credit that they won't be using anytime soon.
In the first two months of the year originations were off as much as 60% at some companies. "Our volume is dictated by their volume," a warehouse executive said. "If they're not doing well, we're not doing well. It's all the same."
In early March, thanks to a slight drop in rates, applications were once again beginning to increase, offering hope to both mortgage lenders and their bankers. Still, few think that loan production in 2011 will match last year's level of $1.6 trillion, which means lower profits for warehouse providers, too.
"I think a lot of warehouse firms are behind the eight ball right now," said Paul Best, senior vice president of warehouse lending at People's United Bank in Bridgeport, Conn.
Best said that for now he isn't worried about his business. He joined People's in late 2010 from PNC Bank, which at the time was quitting the warehouse sector. He has brought several of his former PNC clients to People's and has already signed $100 million worth of new deals. "I'm dealing with a lot of former customers, so we're fine," Best said. "But I do think this could be a trying year for others."
Jerry Davis, senior vice president of ViewPoint Bank, said his business appears to be holding up, but he acknowledged challenges are ahead. New players are "undercutting in an attempt to build market share," he said.
