Warehouse Lines

A warehouse line of credit is used to fund loans by mortgage bankers. A warehouse line a short-term revolving credit supplied by a financial institution to a mortgage loan originator/broker/banker for the purpose of funding of mortgage loans. Our consulting firm assists mortgage companies with securing warehouse lines of credit, call us today and have a mortgage expert help you with the process.

Warehouse lending is a short-term line of credit supplied to a mortgage banker to for the purpose of funding home loans to sell in the secondary market. The mortgage note is used as collateral until the mortgage is sold to a particular investor. Mortgage bankers use the warehouse line of credit to fund a mortgage or to “buy” an already closed loan from another originator. The warehouse line is paid off when the loan is delivered or “sold” to the end investor. Warehouse lending allows mortgage originators the the flexibility for originating loans and assisting borrowers in securing credit for residential home loan transactions, and originating loans for the purchase, and refinances.

Here is a list of different items to consider when looking for a warehouse line provider

  • Do they offer Flexible Net Worth Requirements
  • Is there A Personal Guaranty Required
  • 100% Funding (no haircut)
  • Broker to Banker Offered (training)
  • Multi-State Funding
  • Wet Funding
  • Dry (note in house) Funding
  • Electronic Submission and Reporting
  • Correspondent Lending Offered
  • Scratch and Dent Remedy for Repurchase Offered
  • Third-Party Originations Allowed (TPOs)
  • LIBOR, Prime, Both or Other Pricing
  • Minimum Loan FICO Score (0-850)
  • Minimum Funding Amount Offered ($M)
  • Maximum Funding Amount Offered ($M)
  • 1-4 Units
  • Government Insured
  • (FHA/VA/USDA)
  • Seconds (Piggy-backs/HELOC)
  • Hard Money (subprime)
  • Jumbo
  • Reposession/Gestation LOC
  • Commercial or Mixed-Use

Using a warehouse line for mortgage banking begins with the mortgage banker taking a home loan application from the property buyer. Then the mortgage loan originator secures an investor to where the loan will be sold, whether directly or through a securitization. This decision is generally based on an product of the investor’s for different types of mortgage loans, while the selection of a warehouse lender for a particular loan may different depending on the types of loan products allowed by the warehouse provider or investors that are approved by the warehouse lender to be on the line of credit.

Once the investor has been chosen the mortgage broker/banker uses the warehouse line of credit to fund the loan and delivers the loan to the warehouse line provider to act as collateral for the line of credit. The warehouse lender, at this point, has the security interest in the mortgage note to serve as collateral. When the mortgage is sold to the end investor, the line of credit is cleared and the wired funds from the end investor to the warehouse facility clear the line.

The time that loans are held on the warehouse line, can range based on the quickness at which investors review mortgage loans for purchase after their submission by the mortgage originator. This length of time should be between 10-20 days. Warehouse line providers try to limit the amount of time a loan can be on the warehouse line. For loans staying on the warehouse line too long, mortgage bankers are often forced to buy these notes off the line with their own capital in anticipation of a potential problem with the note. These loans that have issues and cannot be sold to a typical investor are sold on to scratch and dent loan buyers, and are sold at a discount.

Warehouse lines are key in making the mortgage loan market more accessible to property buyers because many mortgage bankers would not have the capital necessary to fund home loans by themselves. For this very reason funding from a warehouse line will allow the mortgage loan originator to provide mortgages at more competitive rates. Loan originators earn their profit from origination fees and not the interest rate spread since the closed mortgage loan is sold as fast as possible to an investor.

Warehouse lending can be characterized as ‘dry funding’ and ‘wet funding’. The difference is when the mortgage loan originator receives the funds with respect to when the real estate transaction takes place. A ‘Dry funding’ happens when the warehouse line credit provider gets the mortgage loan documentation for review before sending the funds. When a ‘wet funding’ occurs the mortgage loan provider gets the funds at the same time as the loan is closed, before the mortgage loan docs are sent to the warehouse line credit provider.

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