Mortgage Warehouse Line of Credit

Warehouse lines of credit are real estate secured short-term lines of credit that allow mortgage bankers to fund loans in their own name, and maintain the loans on the warehouse line until the loans are purchased by the secondary market.

The funding source, (the "Warehouse Lender or Bank"), generally offers the necessary funds through a revolving purchase agreement to a mortgage banking company for funding mortgages at closing. All of the loans are pre-sold in the secondary market to large institutional investors. The warehouse line funding covers approximately a 15 to 30 day period between loan closing and the sale of the loans to the end institutional investor.

Interest is paid on each transaction on the number of days the warehouse lender holds the mortgage loan, from the original funding date to the date the funds are received from the mortgage purchaser. The rate charged is Wall Street Prime plus a negotiated margin as well as a per transaction fee to cover administrative and other related expenses including the wire fee, overnights, and the custodial fee.

Many recent changes concerning RESPA's disclosure of service release premiums coupled with the additional earning power of brokers has caused a great demand for warehouse lines. It is extremely difficult to grow a business with limited warehousing capabilities, and many smaller mortgage firms have expanded and ultimately need these warehouse lines to enhance their mortgage activities.

B.I.B. Capital Management Group has vast experience with soliciting and maintaining warehouse lending correspondent relationships, with our primary objective to provide warehouse lending services to mortgage brokers, mortgage bankers, and financial services companies. We offer warehouse facilities to mortgage originators:

• who are seeking their first warehouse facility
• who are making the transition from mortgage broker to mortgage banker
• who are seeking additional warehouse capacity
• who are seeking diversification in warehouse facilities providers
• who require warehouse facilities of up to $150 million
• who require larger, syndicated facilities for the aggregation of loans for pooling or securitization

• As a mortgage banker, you schedule and control the funding and closing date which enables you to deliver on the promises you make to your clients. You will no longer have to wait for your wholesaler to draw loan documents for you;
• Customer Retention – As a mortgage banker and one who uses a warehouse line of credit, you will be able to draw your own loan documents, in your own company’s name. Since the loan documents are in your name, your customers will identify you as the lender.
• The ability to close loans in your own name establishes a reputation for your company with builders, brokers and real estate agents.
• Yield-Spread Premium Disclosure: Loans "warehoused" by you are treated differently under RESPA as to the disclosure of premiums received by you from the investor. When you use a warehouse line of credit to fund your loans, you will no longer be required to disclose to your borrowers the yield spread premiums (rebate pricing) you receive from your investors. This is because a warehouse-funded loan is considered a secondary market transaction and the profits recorded from the sale are not required to be reported on the HUD-1.
• A warehouse facility often qualifies you for correspondent status with investors, opening doors to many additional investor relationships.
• Positive Arbitrage: As a mortgage banker, you own the loan until it is sold which means you earn the interest up to the date you sell the loan to an investor. This often offsets the interest you pay for the warehouse facility and could result in positive spread.
• Generally Better Pricing for Your Loans – Investors may pay you a premium for your closed loans over your brokered or table-funded loans.
• Servicing Release Premium:You own the rights to service the loan until those rights are sold to an investor (usually in conjunction with the sale of the loan – servicing released), representing additional premium (servicing release premium) paid to you.

Risk of Repurchase:

When a mortgage banker closes loans in its own name, it assumes greater responsibility for the quality of the mortgage. Although repurchase risks can be reduced through diligent underwriting and quality control, some repurchases may be unavoidable. Should this happen, the mortgage banker will need enough cash in order to repurchase the loan. Mortgage warehouse lenders look for liquidity (cash & cash equivalents) in your company during the approval process.

Market Risk:

Mortgage bankers may hold loans in their warehouse line for a maximum of 60 days, although their average "turn time" must be considerably less than 60 days. During that period, interest rates may fluctuate and the price the investor may pay for a loan may move significantly up or down. That is why it is mandatory that the mortgage banker locks its loans with the investor, prior to requesting funding proceeds from its warehouse lender.

Investor Risk:

Purchase commitments are not always iron clad. You need to develop good relationships with several investors.

Fraud Risk:

Risk of fraud is ever present. As a mortgage banker, you will need to employ application screening and quality control procedures that significantly mitigate the risk of fraud.

Overhead Commitment:

As a mortgage banker, you may need to hire additional staff for funding, warehousing, secondary marketing and accounting. Such additional expenses should be taken into consideration.