CHICAGO — Liquidity is beginning to return to warehouse lending, though many who seek warehouse lines are being turned down because they fail to meet new stricter guidelines, according to warehouse lenders speaking at a secondary marketing conference this week. Priority is being given to applicants who had lines but lost their warehouse lenders.
Caution by wholesale lenders, warehouse lenders and mortgage-backed securities investors characterizes today’s mortgage business, speakers and panelists said at the Mortgage Bankers Association’s National Secondary Market Conference & Expo conference in Chicago that started Sunday and wraps up today.
Plano, Texas-based ViewPoint Bank turns down half of all requests for warehouse lines because of credit questions about those requesting those lines, said Jerry A. Davis, senior vice president, warehouse lending group. He estimated that current warehouse line availability meets only 10 percent of current needs.
And Ken Logan, director of the residential mortgage and consumer group at Wachovia Securities, said many of those he turns down come back four or five months later with new and often smaller requests after being turned down by others for the same economic reasons. The Alpharetta, Ga.-based company is looking at loan-loss reserves from “long-term conservative players” that are controlling risks.
“Why would we take a big fly when 75 other people would love to have that million dollar warehouse line,” he said — adding, “I don’t want to hear somebody say, ‘We can really grow [with a warehouse line]. I want to hear how you are a better company, not how big you can grow.”
And Logan also wants to know how the company will be able to keep going after the current refinance boom ends.
ViewPoint’s Davis, who explained that his bank wants correspondent lenders to provide a guarantee or to in some other way have “skin in the game” as well as to actively hedge their risks, said this more conservative approach to warehouse lending is part of “the natural evolution of warehouse lending.”
“Warehouse lending done well and proper,” said Logan, “is a very good business. We’ve made the decision to stay [in the business] and continue to grow.”
Many have decided to halt warehouse lending, he maintained, because it is “a quick and easy way to bail out” of the mortgage business or, at least, reduce one’s role in it.
Wachovia, now owned by Wells Fargo & Co., is giving priority for new lines to those that have lost their existing warehouse lenders, Logan said, pointing to two mortgage companies currently in the process of losing their existing lines.
“To the best of our ability, we’re trying to do something to help them,” he said.
Davis also said when considering lines to lenders that have lost their existing lines, “I make those priorities.”
Secondary market investors also are seeking more information on the loans backing the securities, according to others at the conference.
Investor bids on securities “are not based on ratings anymore,” MBA Chief Economist Jay Brinkmann said at a press conference. Ratings are now only a contributing factor to their bids.
Thomas Deutsch, deputy executive director at the American Securitization Forum, noted that the “wild spreads” currently existing in mortgage markets, he commented: “That’s not going to go away for another six months.”
Meanwhile, he said, “You’re seeing a lot more litigation and threat of litigation on new purchases.”
