Origination News Feature Story

Signs of Hope for Warehouse

By Brad Finkelstein, Paul Muolo and Anthony Garritano

HOUSTON-There has been an avalanche of companies exiting the warehouse business, resulting in a backlog in the entire origination process. Although uncertainties remain, as of last month the business was seeing some signs of life, especially as tighter underwriting standards have reduced the number of risky mortgage originations.

There are financial institutions that want to step in but lack the expertise to do so. This is where a company like Mortgage Warehouse Network here fills the void.

It is looking to "take advantage of a space screaming for help" by rolling out a turnkey solution to help banks get into the warehouse business, said its chief operating officer, Jeff White. Mr. White, among several other people from the company, is a veteran in the warehouse lending space.

In addition, JPMorgan Chase said last month it was planning to provide lines to a handful of correspondents that tend to sell to it. Also Wells Fargo has made a commitment to increase its lines and has indicated its priority will be correspondents who sell to and/or have other business relationships with the company. In addition, Flagstar Bank has said it is looking to increase its warehouse operations using policies that give an advantage to correspondent sellers using technology aimed at creating efficiencies.

Also the Mortgage Bankers Association is actively working with the Government National Mortgage Association on a plan to aid the warehouse market for FHA loans.

Glen Corso, a warehouse consultant, said his group (the Warehouse Lending Project) is hoping GNMA soon will submit the proposal to the Treasury Department.

Whether these signs of hope for warehouse lending will be enough to resolve the concern remained a question at press time. Residential originations spiked 63% in the first quarter from the previous one, but warehouse lending commitments to non-depository funders continued to suffer. According to preliminary survey figures compiled by ON, known commitment volumes totaled $9.2 billion with five firms reporting, compared to $8.3 billion at yearend. Even though commitments rose, they did so by only 11% while originations in the primary market soared.

Also raising uncertainty for the business was the financially troubled largest warehouse lender Colonial Bank, Montgomery, Ala., which last month was trying to recapitalize with money coming from a group led by mortgage banker Taylor Bean Whitaker. At press time, TBW was expected to make a final decision on whether it would go forward with its $300 million investment in Colonial, which also happens to be one of its largest warehouse providers. If the deal falls apart, however, Colonial's immediate future could be in doubt - affecting all its warehouse clients, not just TBW. Like many companies in what recently has been a challenging market, Flagstar, too, recently has wrestled with some financial concerns.