Magazine article American Banker

Prudential Plans to Join Commercial Paper Trend

Magazine article American Banker

Prudential Plans to Join Commercial Paper Trend

Article excerpt

CLAYTON, Mo. -- Prudential Home Mortgage Co.'s recent Al commercial paper rating from Standard & Poor's leaves the company just one rating shy of accessing the cheap commercial market.

The Clayton-based company is awaiting a rating from Moody's Investors Service. If as expected, the rating is in investment grade, Prudential will be able to issue commercial paper to fund mortgages awaiting sale into the secondary markets.

A Financing Bargain

Commercial paper is less expensive than mortgage warehouse lines or gestation repurchase agreements, the other traditional warehouse financing options.

A number of large mortgage banks, including American Residential Mortgage Corp. and North American Mortgage Co., have also recently moved toward starting commercial paper programs.

Because mortgage banks with such programs will have a funding advantage, some market observers feel the trend may spur consolidation in the industry. "This is going to accelerate consolidation and will further separate mortgage banking into haves and have-nots," said Sy Jacobs, an analyst at Alex. Brown & Sons.

Prudential Home Mortgage, which originated almost $28 billion of mortgages in the first three quarters of this year, has three main sources of funding: a line of credit from parent Prudential Insurance Company of America, a $1.3 billion line from a syndicate of banks, and repurchase agreements with Wall Street firms.

The anticipated commercial paper program would have a number of advantages over Prudential Home Mortgage's existing noncompany sources of funding, company officials said. …

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