Last year was a good year, origination-wise, for the approximately 100 warehouse lenders serving the mortgage industry, according to the annual Warehouse Lender Survey conducted by due diligence firm The Reynolds Group.
Of the approximately $1.45 trillion in loans originated in 2015, about $1.03 trillion, or 71%, was originated via warehouse lines of credit, according to the survey. This high percentage, The Reynolds Group says, is “an indication as to the importance of warehouse lending in providing well over half of the short-term liquidity needed to fund residential loan originations throughout the U.S. in 2015.”
Seventy-eight warehouse lenders volunteered data on an anonymous basis for the survey. Each uses a slightly different business model depending on the mortgage banker/customer segments it serves. Reynolds defines those segments as follows:
Small caps. A mortgage banking company with net worth below $2.5 million; monthly closed loan production oftentimes less than $20 to $25 million per month. Mini-correspondent lenders and emerging broker-to-bankers are included in this segment.
Mid caps. A mortgage banking company with net worth ranging above $2.5 million up to $25 million; monthly closed loan production oftentimes in the $100 million range. Mini-correspondent lenders are also included in this segment.
Large caps. A mortgage banking company with net worth greater than $25 million; monthly closed loan production oftentimes greater than $200 million. Many large caps also include large servicing portfolios administered either internally or by a subservicer.
As the report points out, the warehouse lending industry was decimated by the financial crisis – there were only a handful of warehouse lenders in operation in 2010 – but starting in 2014, as the housing market started to come back to life, the segment bounced back quickly.
“Since mid-2014 [there has been] a strong increase in syndications and/or participations among banks that each have their own respective established [warehouse lending] platforms,” the survey states. “To a lesser extent, the data indicated a small number of loan syndications returning to the marketplace.”
Also driving rapid growth in the segment is the fact that warehouse lenders have expanded their offerings to include not only loan origination interim financing but also mortgage servicing rights financing, servicing advances, buy-to-rent funding (including direct purchases and investor financing) and construction lending.
“Many of the respondents stated that 2015 was, on balance, a very good year for their respective [warehouse lending] platforms,” Reynolds says in its report on the survey results. “March and June were cited as high performance months, with November and December ending the year on a positive trend.”
However, 2015 was not entirely smooth sailing for warehouse lenders: The report reveals that the Consumer Financial Protection Bureau’s (CFPB) new TILA-RESPA Integrated Disclosure (TRID) rules were, as of the fourth quarter, starting to have some impact on average turn times.
Average turn times, according to the report, “increased to approximately 19 days, compared to a 14 to 17 day range in recent, prior years, reflecting investor take-out delays resulting from TRID compliance issues/challenges/confusion.”
“It is anticipated these turn times will remain high for at least the first quarter of 2016, and possibly longer,” Reynolds says.
To access a copy of the report, click here.