There's tons of liquidity available in the market place right now," one warehouse executive told us. That comment was made in mid-2005 and seems to summarize the state of the market. The warehouse niche — like all sectors of the industry — has benefited immensely from the boom in nonconforming production, especially subprime, alt-A, and interest-only loans.

Traditionally, the fortunes of the warehouse market rise and fall on the primary market. When loan production booms (as it has the past few years) warehouse lending booms. According to figures compiled by the MID, warehouse providers had $84 billion in commitments outstanding at year-end 2004, a slight 4% decline from the previous year. But the overall production market fell by a lot more — 28%. It would stand to reason that warehousers should have suffered a lot more in 2004. The reason for the strong performance is the growth in nonconforming sector.

Keep in mind that depositories now control a significant portion of the primary and wholesale origination markets. Depositories (Countrywide, Wells Fargo, WaMu) use deposits (and commercial paper) to fund their production which means warehousers should lose business. But it hasn't exactly worked out that way because non-depositories (Ameriquest, New Century) are the dominant players in the rich non-prime niche.

The Rankings

In this chapter we present the top warehouse providers as ranked by loan commitments at year-end. Most of the lines of credit are extended to non-depository mortgage bankers though there are exceptions. The results are incomplete to some degree because certain financiers, including several Wall Street firms, declined to participate in our surveys. The Street participates in the warehouse niche, funding loans using "gestation repos." Repos are similar to LOCs but have different funding points including "dry" and "wet" stages tied to when the collateral is delivered. Street firms tie repos to their trading desks and ABS businesses.

It's no surprise that GMAC-RFC of Bethesda, Md., once again ranked first among warehouse lenders (see rankings) but it is noteworthy to see Washington Mutual, and First Collateral move up in the rankings. Both these firms (like GMAC-RFC) are important funders of nonconforming loans — and are two warehousers to keep an eye on in the year ahead.