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Smaller mortgage bankers report they continue to struggle to find sufficient lines even as some say the worst of the credit drought seems over. Supply may be approaching demand; nevertheless, warehouse capacity is down substantially from its peak.
Warehouse lending- the essential lifeblood of mortgage originations - began to shrink in the summer of 2007 as the mortgage market began to enter a meltdown. * The decline in warehouse lending started small in 2007. At first, lines were cut back or canceled for subprime and alternative-A lenders. * Then the pullback of lines began to be more ominous. In March 2008, for example, Citigroup's CitiMortgage Inc., based in O'Fallon, Missouri, reeling from billions in write-downs on subprime mortgages, announced it was shutting down its warehouse lending division - First Collateral Services, Concord, California, a major independent player. * The pace of departures took off after Lehman Brothers' collapse in September 2008 led to a widespread credit market freeze. Lehman Brothers was, in fact, a major warehouse lender. One by one, the Wall Street firms and some big banks that were providing warehouse lines began to get out, including Deutsche Bank, UBS AG and ABN AMRO Bank NV. * The mass exodus of warehouse lenders led to the collapse of many well-run, well-capitalized independent mortgage bankers, which simply could not conduct business without warehouse lines. Mortgage companies "were dropping like flies," recalls John Johnson, president and chief executive officer of MortgageAmerica Inc., an independent mortgage banker based in Birmingham, Alabama. * During 2009, the three largest remaining warehouse lenders either exited the business or sharply curtailed their lending, leading to the low point for warehouse credit roughly one year ago.
In March 2009, former No. 2 warehouse lender National City Corporation, Cleveland Ohio, which had been acquired by PNC Financial Services Group Inc., Pittsburgh, announced in it was leaving the business entirely. National City had agreed or committed to $2.2 billion in warehouse lines to non-bank mortgage firms at the beginning of 2009.
Former No. 3 warehouse lender Guaranty Bank, Dallas, which had $1.84 billion in commitments to mortgage bankers at the time, told its customers in March 2009 that it would exit the business when current warehouse lines expired. (Guaranty Financial Group, the...