What is a Warehouse Line of Credit?
In general, a warehouse line of credit is a short-term revolving line of credit secured by real estate that allows mortgage bankers to fund loans in their own name. The funding source, also known as 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. These loans, which are pre-sold in the secondary market to large institutional investors, are maintained on the warehouse line until they purchased. The warehouse line funding covers approximately a 15 to 30 day period between loan closing and the sale of the loans to the institutional investor.
The interest that is paid on each transaction depends on the number of days the warehouse lender holds the mortgage loan. This interest is calculated from the time of the original funding date to the date the funds are received from the mortgage purchaser. The interest rate that is charged to the mortgage banker 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.