Warehouse Lending Project
Warehouse Lending Project
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WAREHOUSE LENDING BASICS
What is Warehouse Lending?
Warehouse lending is a commercial line of credit provided to a mortgage banking company to fund residential mortgages. It is a short term, revolving credit facility that funds a lender’s pipeline from the closing table to sale in the secondary market.
Mortgages funded by the warehouse facility serve as collateral for the line of credit. Mortgage bankers draw down the line of credit to fund a mortgage at closing or to purchase a closed loan from another originator. The line of credit is paid down when the mortgage banker sells the loan to an investor or into a mortgage-backed security.
Mortgage loans are typically in and out of the warehouse line within 18 to 20 days on average. As a revolving facility, a given line of credit supports several times the line amount in primary market originations.
Key Features of Warehouse Lines
Line amount – The maximum dollar volume of loans that can be funded. Some mortgage bankers may have multiple lines from different lenders to meet monthly funding obligations, but many have a single warehouse facility. Many warehouse lenders have been forced by market conditions to reduce their customer’s line amounts.
Interest rate – Warehouse lines are typically priced off 1-month LIBOR plus a spread. LIBOR volatility and increased line spreads have resulted in significant increases in the cost of warehouse credit.
Advance rate – Warehouse lenders typically apply a “haircut” to line advances, resulting in advance rates of 98% - 99% of the face amount of the loans being funded; originating lender funds the rest from its own capital. As warehouse lines have come up for renewal, some warehouse providers have reduced advance rates.
Warehouse Lending Project
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