The mortgage banking industry has seen a new force in funding options through warehouse lending and lines of credit. Warehouse lending is a special type of lending that is utilized by mortgage bankers, brokers, and smaller banks. These institutions will originate and offer mortgage financing to a residential borrower, and at closing, the funds will be provided from a warehouse lender.
Though warehouse lending and warehouse lines of credit are used to help finance and fund a mortgage transaction, rarely does the originating bank or broker keep the loan on the books. Instead, the loans are most often sold to a secondary market, usually insurance companies or other mortgage investors. Although a borrower may think they are obtaining a loan from their local bank or mortgage broker, they are only partially correct. Once the loan closes, it is sold, sometimes concurrently, to another investor who will service the loan for the duration of the loan term.
However, small banks and brokers can also benefit from warehouse lending. With each successful mortgage origination, the bank earns an origination fee. The fee is usually based on ‘points’ or a percentage of the total loan amount. Origination fees usually are about 1% to 2% of the total loan package. These fees are part of the bank’s profit and help pay for the expense of underwriting the loan.
In addition to origination fees, a bank or mortgage broker can also earn additional profit with the sale of the mortgage document. The mortgage broker or bank funds the loan to the borrower at an agreed interest rate. When the mortgage is subsequently sold to a mortgage investor, it is usually at a higher interest rate.
For instance, a bank originates and funds a mortgage at 5% interest, but sells the loan to another investor for 6% interest, giving the bank a 1% interest income on the loan. However, the reselling interest is usually a much smaller percentage of about 1/4 to 1/2 of a percentage point.
Call us today or fill out our short form to obtain a new warehouse line for your mortgage company, and start doing more volume for your business. We are specialists in connecting small and medium sized lenders with warehouse lines that fit their specific needs. We look forward to working with you!