HousingWire recently spoke with David Bernard, senior managing director of Specialized Mortgage Services at Western Alliance Bank, Member FDIC, about warehouse lending and how the warehouse sector and mortgage finance have progressed and continue to evolve.
HousingWire: Has the banking crisis earlier this year left any lasting impacts on warehouse lenders?
David Bernard: The market events in early 2023 impacted the entire banking industry, creating a need for swift adaptation within the banking environment. Western Alliance Bank’s holistic approach centers around a personalized, full banking relationship for our warehouse lending and MSR financing clients, building trust that served our bank and clients well this year.
Traditionally, most lenders focused on providing warehouse lines of credit to independent mortgage bankers (IMBs), helping to facilitate the sale of their loan origination pipeline into the secondary markets. Western Alliance Bank transformed this model over a decade ago. Unlike banks focused on one specific lending area, Western Alliance Bank lends on multiple asset classes and provides strategic treasury management solutions.
We formed a dedicated treasury management group within Specialized Mortgage Services seven years ago. This approach expands our ability to work with clients as not just a service provider but a strategic ally, something that differentiates us in the market and builds the deep trust that is a hallmark of our client relationships.
Part of Western Alliance Bank’s strength as a banking organization includes providing solutions tailored to a diverse array of national business lines, such as corporate finance, municipal finance and affordable housing, technology banking and life sciences, settlement services, gaming, HOA and community associations, and a trust subsidiary. These business lines provide built-in resilience by diversifying our deposit channels — an intentional design that has proven more crucial now than ever.
HW: How has mortgage finance changed in the last few years?
DB: Warehouse lending has evolved beyond traditional boundaries. The lending landscape has expanded to encompass diverse asset classes, including mortgage servicing rights (MSR) financing, working capital lines, note financing and merger and acquisition (M&A) financing. This shift is in response to ongoing industry consolidation.
For instance, for assets like MSRs that generate positive cash flows, there’s a demand to leverage the asset to help retain ownership. The cash flow serves as a buffer, compensating for decreased revenue from mortgage originations due to elevated rates. The leverage enables IMBs to continue to service their customer, avoid selling a servicing portfolio during an inopportune time and seize refinance opportunities when rates fall.
The unique combination of our well-established Specialized Mortgage Services group and our affiliate, AmeriHome Mortgage — one of the nation’s largest bank-owned correspondent lending entities —showcases our dedication to the mortgage sector. We offer efficiencies in financing loans being sold to our conduit, a trend the industry is embracing to help offset macroeconomic pressures. Our experienced team is knowledgeable about various loan products and other offerings, backed by modern, purpose-built infrastructure and advanced data and analytics capabilities. As a result, we now finance a broader spectrum of mortgage products crafted by IMBs. As we adapt to these changes, we pride ourselves on our ability to identify and respond to emerging trends as industry leaders.
HW: What should we expect from the warehouse lender sector next year?
DB: We expect next year to be similar to 2023 and possibly even more challenging for the IMB and warehouse lending sectors due to current global events, fluctuations in the bond and stock markets and the 10-year Treasury and ongoing jobs growth. The consensus seems to be bracing for a turbulent year, with potential relief around late 2024 to early 2025.
Warehouse lenders will continue to emphasize supporting their IMB partners. Western Alliance Bank will focus on providing strategic debt and treasury management products and services to our customers in our ongoing efforts to navigate this high-rate cycle. Providing enhanced treasury management solutions is an essential element of our approach to better construct or re-engineer payment processes. Maintaining a holistic banking relationship with our customers can mitigate fees and streamline operations, with the added benefit of defending against fraud. Tools like auto-reconciliation and eZePay may even help companies avoid the need for additional FTEs.
Ultimately, in this demanding economic landscape, lenders will continue to work diligently for their mortgage origination clients. However, some will continue to face headwinds, and those mounting pressures could lead to potential consolidation in both the banking sector and among independent mortgage bankers.
HW: What should lenders look for in a banking partner?
DB: In considering a banking partner, especially for mortgage bankers, it’s important to demonstrate strong business acumen for our changing industry of mortgage finance, prioritize adaptability and offer a robust set of services tailored to specific customer needs.
Western Alliance Bank offers a personalized touch backed by national resources and expertise, allowing us to cater to a variety of transactions, from the straightforward to the complex and innovative. We pride ourselves on having the versatility to tackle challenges head-on and create unique structures beneficial for both the borrower and the bank.
Beyond a wide array of solutions, our genuine dedication to understanding our clients’ needs differentiates us. Regardless of size, our clients can count on best-in-class service, including access to executive management, assuring them that they’re always a priority and their needs are being met in a very timely manner and at the highest level. We provide transparency and insights into our operations and strategies. That predictable behavior in the day-to-day interactions from a valued team provides added confidence during major shifts like we saw last March.
In short, we believe the ideal banking partner should not just provide services but recognize and resonate with your needs. Our longstanding effort in this area is reflected in our clients’ feedback that our commitment to them is unmatched, with solutions tailored to meet the unique challenges mortgage originators face. We strive tirelessly to be not just your bank, but your strategic banking partner.