Since the darkest days of the recession when available warehouse line-of-credit financing nearly disappeared, a number of players have either entered the market to finance new loan originations or expanded their presence.
The contraction in warehouse lending started as the subprime sector began its meltdown in 2007.
As overall credit markets began seizing up and the eye of the storm made landfall in September 2008, available warehouse credit contracted significantly. Warehouse capacity fell from around $200 billion in 2007 to around $20 billion in 2008.
But in early 2009, when GMAC was flush with deposits from Ally Bank — which was offering above-market deposit rates — it targeted an expansion of its warehouse lending operations.
Such a move can be very lucrative for financial institutions because the business has been historically profitable.
In addition, commercial mortgage performance — which had been holding up even as residential subprime defaults were soaring — has recently seen an acceleration in delinquency. Commercial banks are turning to warehouse lending, which has long been a profitable business.
In fact, while there has generally failed to be resurgence in non-agency credit, a trend is developing of companies strengthening their interest in warehouse lending or jumping in the game.
GMAC’s disclosure was followed by similar moves by BB&T Corp., Citigroup Inc., JPMorgan Chase & Co. and Sterling Warehouse Lending.
In addition, Freddie Mac launched a pilot program to support warehouse lending, while MetLife disclosed that it was considering warehouse opportunities. GMAC has since hired an executive to expand further. Flagstar Bank and Southwest Securities FSB have also been expanding.
Other active players we’ve noted include Wells Fargo Multifamily Capital, PNC Bank, Bank of America and Credit Suisse.
But it’s not a risk-free business.
The former president of First Fidelity Mortgage Inc. was sentenced to six years in prison for providing fake notes to warehouse lender Sabine State Bank.
And Worldwide Financial Resources collapsed as it sold the same loans to multiple investors.
