| 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. 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. 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. 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 line 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”. It works essentially the same way with the mortgage brokers. Usually mortgage brokers can not afford to fund the loans themselves. 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. 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 bonds sold by the investor companies in the secondary market. 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. |
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