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Special Reports
Warehouse Lending
Warehouse Lenders Expecting a Correction
By Paul Muolo
WASHINGTON--There's an old saying among warehouse lending executives: as the primary
market goes, so goes the warehouse market.
Over the past two years warehouse commitment volumes and usage of those lines
has skyrocketed as non-depository mortgage bankers funded a record amount of home mortgages.
Fueling the need for credit has been the refinancing boom and the entry of many
new players into the market.
But now that interest rates have ticked up a bit and pipelines have slowed, warehouse
professionals are bracing for a slowdown.
"Our customers were super busy in July," said Paul Narduzzo, senior
vice president of HSBC Bank USA, Buffalo, N.Y. "But things have slowed down a bit. I think the volumes we
are seeing now are more what I would call normal."
At the end of September, HSBC had warehouse commitments of $700 million, an all-time
high for the foreign-owned bank. (HSBC owns conventional lender HSBC Mortgage as well as Household International,
the subprime giant.)
At one point this summer, usage of HSBC's lines was running at 80% to 90%, said
Mr. Narduzzo. "Now it's back down to 50% to 60%."
National City Bank, which has its warehouse division housed in Louisville, Ky.,
also is seeing signs of demand slackening. It currently has $1.8 billion in commitments and outstandings of $1
billion.
At year-end 2002, it had commitments of $2 billion. (Most of its warehouse customers
are mortgage bankers that play in the conventional market.)
National City's Paul Best said he is seeing a slowdown from firms that have gorged
on refis, but noted that lenders "that cater to homebuyers are stronger than ever."
Comerica, the nation's No. 10-ranked warehouser, said business has been good up
until the last 30 days. "Things have fallen off fairly significantly," said Von Ringger, a first vice
president there.
He added, "There is no question that things have slowed."
About the only warehouse lender not seeing much of a slowdown is Citigroup-owned
First Collateral Services, Concord, Calif.
"We're continuing to march forward," said FCS chief Lynn Merkle. "There's
no slack in request for new lines. Our commitments are going up."
FCS's performance is noteworthy because in years past it has made a name for itself
by providing funding for nonconforming loans. But according to Mr. Merkle, just 15% of its current lines fund such
products.
He believes that as conventional refis begin to slow, many lenders -- as well
as their warehouse backers -- will turn to subprime and alt-A product as a way to make up for the lost volume.
"During the past two years many firms were going for the easy, low hanging
fruit, the refis," he said.
Has Mr. Merkle and other executives interviewed by Origination
News heard any reports of warehouse providers (a niche dominated by mostly
commercial banks) exiting the business?
So far, the answer is no. But Mr. Merkle noted, "I think it's too early for
people to think about getting out."
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