Warehouse Lending is an extremely popular option for mortgage lenders as it is an efficient way to provide financing without using their own capital. In a typical warehouse lending arrangement, the mortgage lender will secure a line of credit from a financial institution, such as a bank, to finance their mortgage loans. The mortgage lender is then responsible for finding the borrowers and processing the applications, and upon approvals, the loan funds are disbursed from the bank’s line of credit. The mortgage lender must then repay the funds back to the bank via the warehouse loan.

Typically, when a mortgage lender has excess founds available in their warehouse line of credit, they can draw funds back out of the line of credit (up to their maximum) to finance more mortgages or originations. The bank that provided the warehouse line of credit then is paid back according to the terms of the credit-line. The bank often profits by including a fee and/or points in the cost of the loan which can be bundled into the loan amount or charged separately.

With warehouse lending, mortgage lenders can secure finance quickly, cheaply and with minimal risk. This flexibility can be a great advantage when the mortgage industry fluctuates with changing interest rates and require new lines of funding to be secured quickly. Warehousing lines can also be used to finance projects and build out new offices as needed, as well as providing working capital for loan servicers and portfolio holders.

Mortgage lenders looking to take advantage of warehouse lending should ensure they have the creditworthiness and assets necessary to secure a line of credit from a financial institution to ensure the rate and reliability of their funds over the term of the loan. Banks will also often have strict requirements for their warehouse partners to prevent defaults, so lenders should consult closely with their chosen bank and verify their qualifications.

Overall, warehouse lending is a great way for mortgage lenders to finance their originations without having to resort to their own capital. This can be a great way to manage risk while still offering customers a competitive rate and quality service.