Mortgage Industry News

Chase Changes Its Mind, Will Stay in Warehouse
National Mortgage News (05/11/09) Vol. 33, No. 32, P. 1; Muolo, Paul 

“JPMorgan Chase has decided not to exit the warehouse lending business after all but now will provide lines of credit only to certain customers that sell loans to it on a correspondent basis. The firm in 2008 purchased the warehouse business of Washington Mutual, which had just 10 customers left when JPMorgan Chase announced plans to pull out of the niche. A company spokesperson said it now will serve only a subset of these 10 customers.”    

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WAREHOUSE LENDING UPDATE:

Chase correspondents must have began to notice that delivery was destined to suffer as independent mortgage brokers lost more and more warehouse capacity.  If mortgage bankers don’t have the funds to disburse loans, it makes it really hard to sell to correspondent investors.  Those correspondent executives must be putting pressure on their commercial lending divisions to at least extend funds to their “best” clients… 

As a trend, several larger lenders are deciding to “remain” in warehouse lending by offering lines of credit to their largest correspondent lenders – with some pretty hefty restrictions on where those loans can be delivered.   Every time one of these companies sends out a press release –hundreds of mortgage bankers pick up their phone hoping for relief… but they are not offering warehouse lending to the market at large.  Wachovia, GMAC/RESCAP, and Chase (and a few others) are taking care of long-standing customers that deliver volume to their correspondent channel.  I even received an email forward indicating that only companies with a correspondent Senior VP level recommendation would even be considered as an applicant.  Perhaps in the “bigs” jockeying for market share, they will start to incent loyalty… however, it is my understanding that today they know they have their clients “over a barrel” changing conditions, terms and restrictions on lines with little notice.  Many bankers remain insecure about their line and how to price with net worth, cash reserves, haircuts a moving target.  While by necessity many bankers are grateful for any capacity… you can sense that those bankers remaining in the market, ones that have proven their worth as businessmen and women, are becoming disenchanted with expectation that they genuflect to their business partner and pay homage to their generosity. 

For lenders that don’t have long standing correspondent relationship with one of the big lenders, well… you still have a few options.  First Tennessee – under the stewardship of a very conservative Bob Garrett  (say what you want about his iron fist on approvals – but they didn’t miss a beat during this meltdown – and I am sure his current clientele is very grateful)… Comerica – whose net worth requirements increase on a weekly basis in response to swelling demand – I think they are now looking at a $5mm minimum net worth.   Sovereign – who I heard came out this week and know little about… Gateway Bank – with a sizable non-refundable app fee and some pretty directed back end requirements… Silvergate – don’t call them unless you are a local CA banker… Tier One… another I don’t know about but have heard conflicting reports about their taking applications.

Titan is in negotiations with a few regional banks that are interested in offering warehouse lines.  While some will be national, most are just looking to shore up one of their customers, and we are managing the line for them.  This means that things will start to ease… however, I believe that we are not going to see a fair normalization until at least next year.  My best advice to anyone looking for capacity – be creative… think short term survival…  

Titan Lenders Corp president Mary Kladde spoke in depth with National Mortgage News this month about the need for a national warehouse lending solution, how this warehouse line could be structured, and Titan’s new programs designed to address this need for regional banks, community banks and credit unions. Thanks to Brad Finkelstein for a fantastic explanantion of this critical issue:

“The founder of Titan Lenders Corp., after recently lamenting about the lack of warehouse capacity, has sprung into action to help create a solution to the problem. 

“Mary Kladde, president of Titan Lenders Corp, has been outspoken in the need for an increase in the availability of warehouse funds, even going as far as calling for the government to use Troubled Asset Rescue Program money for this purpose.

“Now, Titan has launched a warehouse lending operations service platform to facilitate community bank and credit union entry into warehouse lending. The platform helps regulated institutions sustain a prudent level of due dilligence, compliance and profitability when offering bridge financing required by non-depository mortgage bankers.

“Since she first went public with her call for the use of TARP funds to serve as interim funding for mortgage loans, a few community banks, which have the capital to lend and the relationships with local mortgage bankers but lack the expertise to execute a warehouse lending program, have contacted Titan, she said. Mortgage bankers have started to turn to their local banks because they are seeking warehouse providers as their old sources are exiting the business.”

Read more about Titan’s warehouse lending platform here.  John Courson also ran a piece in the Washington Times this week focusing on the crisis:

“With so much attention focused on the housing market these days, it is surprising that an extremely critical, yet not well publicized, link in the mortgage-lending chain is in danger of becoming permanently broken.

“Warehouse lending, which provides short-term funding to mortgage banks so they can originate mortgages and sell them in the secondary market, is headed toward extinction.

“The situation has already reached the point where many of the “once-in-a-generation” refinance and purchase opportunities touted in the media are not attainable by many consumers due to the fact that lenders face a cash crunch caused by the loss of warehouse credit lines.” 

The warehouse line lending solution to mortgage industry liquidity issues has definitely started gotten the attention of the mortgage industry. Coverage is spreading like wildfire! Here are some updates today. First, we are featured on the front page of MortgageChronicle.com:

Firm Aims to Boost Warehouse Liquidity
Titan Lenders Corp. launched a warehouse lending platform to help community banks and credit unions enter warehouse lending, a press release stated. Titan said financial institutions can replace deteriorating revenue with income earned from financing originations for mortgage bankers. In addition, the institutions will boost economic activity in their communities by providing warehouse financing to local mortgage bankers.

And, we just found out we were featured in American Banker and National Mortgage News:

Small-Bank Warehouse Facility
Titan Lenders in Denver has started a service platform for warehouse lending operations to ease community bank and credit union entry into warehouse lending…

The issue is certainly timely and the need is great, as today’s Mortgage Implode-O-Meter reinforced:

“Clients of warehouse lenders Guaranty Bank and National City (PNC) were called with the news today that they intend to exit their warehouse lending lines of business. Both banks intend to phase out their mortgage warehouse lending operations, taking the same non-renewal approach as client contracts expire over the next 12 to 18 months.

“Guaranty Bank reportedly has $1.1 billion in outstanding commitments. With National City’s $4.3 billion, the two banks comprise an estimated 27% of all warehouse lending volume still in existence — and a huge blow to non-depository lenders who rely on these lines-of-credit to fund loans for their clientele.”

We’re not the kind of people who would say ‘I told you so,’ but if we were, now is when we’d say it. More updates soon! Mary and Ruth