Warehouse Line Introduction

Most people know about lines of credit- an unsecured amount of credit that a bank or lender makes available to a consumer. Generally, we hear about lines of credit in a real estate context, and homebuyers utilize them extensively for repairs and renovations on their homes. Rather than a loan with a set amount where you might take out more or less than you need, a line of credit is used only when you need it, so the repayment is always exactly correct.

In 2009, many mortgage brokers and mortgage bankers have looked more closely at fidelity bonds and surety bonds as alternatives to supporting their efforts to obtain warehouse lines. Particularly if you are a mortgage banker and looking to do mostly FHA loans, you may be required to obtain a fidelity bond before your line of credit is approved.

In addition to consumer driven lines of credit, there is another type of line of credit that many people and even investors aren't aware of, which is a warehouse line of credit. Warehouse lines of credit are used by mortgage brokers, partly to maximize profit on their lending activities. The purposes of warehouse lines of credit, however, are numerous, including:

  • The ability to control funds: warehouse credit lines give the mortgage representative more control over the loan document process because they are the ones who control the line of credit.
  • Permanent Funding: Unless, for some reason, the loans fail to go through, the lender is not required to buy the loan back, meaning that the line of credit permanently funds the loan.
  • Less risk than some investments: Once the loan is funded, there are no margin calls, etc.
  • Unlimited loan volume: lenders are able to enlarge their portfolios and maximize their loan interest income.

To execute a warehouse line of credit, the mortgage professional arranges for the loan from a warehouse lender who keeps the original note from the loan. The rest of the documents go to the mortgage professional who offers the note for sale on the mortgage market (mortgages are bought, traded, and sold much like any other investment). When an investor (usually a large institutional investor) purchases the loan, the lender gives the original note to the investor and keeps the proceeds left after fees (wire fees, etc). The warehouse line of credit funding generally covers anywhere from a fifteen to a thirty day window between the loan closing date and the loan being sold to the loan's end investor. Nearly any loan is eligible to become a warehouse line of credit, including subprime, residential and commercial transactions, specialty property loans, and equity loans. Rates vary depending on the collateral and advance rates are generally higher.

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If you are interested in learning more about obtaining a warehouse line please fill out our contact form or give us a call at the number listed at the top of this page. We are excited for the opportunity to help your business grow!