What is a warehouse line of credit?

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Note: The content below about broker to broker is under review and still being developed.

WAREHOUSE LINES OF CREDIT

To close a mortgage loan, the mortgage lender will request funds from its warehouse lender and deliver the associated mortgage note to the warehouse lender to be held as security for the warehouse line. Most mortgage lenders are not owned by banks, thrifts, credit unions, or insurance companies. Instead most mortgage lenders are public or privately held corporations which originate loans and sell them to "investors" who then retain or resell those loans, often in the form of mortgage-backed securities.

To close a mortgage loan, the mortgage lender will request funds from its warehouse lender and deliver the associated mortgage note to the warehouse lender to be held as security for the warehouse line.Usually a warehouse line of credit is a revolving line secured by 1) the mortgage loans originated by the mortgage lender, and 2) the promise to repay the line by the mortgage lender and the guarantors on the warehouse line.

The two agreements which can be used are 1) the "Warehouse line of credit Loan and Security Agreement", and 2) the "Warehouse Participation Agreement" (sometimes called a "Purchase/Re-purchase Warehouse Agreement" or a "TPO" Warehouse Agreement). From a day-to-day operating perspective, there is virtually no difference between the two. However, there are technical differences which can be important. There are two basic types of warehouse lines, best distinguished by the type of warehouse agreement used between the warehouse lender and the mortgage lender.

LOAN AND SECURITY AGREEMENT

Generally accepted accounting principals usually call for a loan-type warehouse line to be disclosed as a liability on the balance sheet of a mortgage lender, and the corresponding mortgage loans to be disclosed as an asset, usually "Mortgage Loans Held for Resale". Anticipated revenue on the pending sale of the mortgage loans is not recognized until the investor actually purchases the loans, regardless of whether firm commitments to purchase exist. A line extended under a "Warehouse Loan and Security Agreement" (loan-type) is a commercial loan between the warehouse lender and the mortgage lender. The warehouse lender takes a security interest in each mortgage loan originated with the warehouse line, and the mortgage lender owns each mortgage loan from the day it is disbursed until the day it is purchased by an investor.

WAREHOUSE LINE PARTICIPATION AGREEMENT

The mortgage lender has the right to re-purchase the mortgage loan, and the re-purchase price is higher than the price "paid" by the warehouse lender, effectively providing the warehouse lender with "interest" on his "loaned" funds. Purchase-type agreements are popular for several reasons. A line extended under a "Warehouse lines of credit Participation Agreement" (purchase-type) is actually not a loan at all, but rather a purchase agreement between the warehouse lender and the mortgage lender. The warehouse lender usually purchases a 100% participation interest in each loan originated under the warehouse line, thereby actually owning the mortgage loan.

Therefore, warehouse lenders owned by smaller financial institutions can extend larger lines without violating their "loans-to-one-borrower" restrictions. First, the only "borrower" is the borrower on the underlying mortgage loan.

Also, the business of purchasing and selling loans is usually more appealing to managers of credit risk and boards of directors than is the business of extending large, highly-leveraged lines of credit. Second, many warehouse lenders recognize that the risk drivers associated with warehouse lending largely parallel those associated with correspondent lending. By using a purchase-type agreement, a corporate mortgage group may be better able to manage its warehouse unit with existing talent.

This treatment allows a mortgage lender to have substantial warehouse capacity without appearing to have extremely high leverage ratios. (The notes at the end of a mortgage lender's audited financial statements will usually disclose the existence of this type of warehouse lines of credit facility). Third, purchase-type agreements provide off-balance sheet financing to the mortgage lender. Most agreements contain terms which cause GAAP treatment to recognize the warehouse transaction as a sale, thereby eliminating the need for disclosure on the balance sheet of the mortgage lender.

While the lack of repurchase requirements keeps purchase-type agreements from being classified as "financing arrangements", the mortgage lender will virtually always repurchase the warehoused mortgage loans because he/she will get better execution in the secondary market than obtainable under the Warehouse Participation Agreement. Most Warehouse Participation Agreements give the mortgage lender the option to re-purchase warehoused loans, but not the obligation to do so unless certain repurchase events occur.

Contact the MBSD group today about getting Warehouse Line of Credit.

Click Here for some basic questions answered about Warehouse Lines of Credit.

Warehouse lines of credit

Warehouse Lending

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At The MBSD Group, we want to earn your business, not force you to do business with us. That's why our warehouse customers can sell warehouse lines of credit to more than 50 approved investors. When you get a warehouse line of credit from us, you get:

· Single point of contact with your Indymac Business Development Manager

· Access to Indymac's full suite of products including Interest Only ARMs, NonPrime, HELOC, Home Construction and our renowned Alt-A programs

· Easy-to-use, Web-based funding for fast, efficient transactions

· 24/7 online reporting, including loan level accounting, aged inventory, and payoff histories

· Competitive pricing and advance rates for customer's specific warehouse lines of credit needs

Have an Indymac construction loan? You can use The MBSD Group warehouse line to fund it.

Tap into our line with no strings attached To apply for or get more information about our warehouse line, e-mail Warehouse lines of credit Lending Please include your business contact information.

Warehouse lending and Mortgage Banking

Definition of Warehouse lending and its role in the home owning experience.

In the last couple of weeks, I have been fortunate or unfortunate (I am not sure yet) to be exposed to warehouse line of credit lending. Before you go any further let me warn you that the reading will surely become boring. Unless you are in the mortgage industry or somehow you are one of those people that is interested in knowing every single detail of the financial transaction that is the closing of a residential mortgage loan. With the move from a big community bank to a really big community bank on the brink of becoming a major regional force, I have been exposed to some types of credit that my prior employer was averse to taking.

First lets start with a simple definition of warehouse lending:

Warehouse lending is a specialized type of lending that commercial banks and other finance institutions provide to companies involved in the mortgage banking business. The loan that was closed with XYZ finance company or the small community bank will get funded with money provided by this credit facility and the documentation will be sent to the institution that has the warehouse lending facility to act as collateral for the warehouse lines of credit.

I am sure that by now you are very confused; after all if you go to say "Little Main Street Bank" in your neighborhood, you might think that as a home buyer you are only dealing with "Little Main Street Bank" to get your loan. Well chances are that you are incorrect. That little bank might provide you with good service and a competitive rate, but they are usually not that interested in keeping your loan. Small and medium sized banks make more money in the origination fees and selling your loan to an investor right away or they might work in coordination with a mortgage banking company to sell the loan to them at the same time that it is being closed. The act of buying the loan from the originator at the same time that the closing of the loan happens is called "table buying" or "table financing".

A small one-man operation would be hard pressed to keep a million dollars in order to fund six closings and wait for the investor to purchase the loans. A mortgage broker simply can't operate that way. He needs financing and he needs it in place before he can fund. It works essentially the same way with the mortgage brokers. Usually mortgage brokers can not afford to fund the loans themselves.

Continue reading more on the subject of Mortgage lending behind the scenes:

Go to Fraud in Warehouse lending
Go to The role of Investors in mortgage lending.

Essentially the funding of your mortgage loan could be accomplished with a large cast involved. The following is a hypothetical closing describing all of the financing players that could be involved:

1) Mortgage broker closes the loan.
2) Mortgage banking company buys the loan at the time of closing.
3) Bank funds Mortgage banking company using the warehousing line.
4) Investor Company buys the loan as part of a pool of loans sold by Mortgage banking company.
5) Individual or corporate investor buys warehouse lines of credit / bonds sold by the investor companies in the secondary market.