Warehouse Agreement Practical Law

The repayment of storage lines of credit is provided by lenders by fees for each transaction, in addition to fees when lenders deposit collateral. Storage credit can be seen as a way for a bank or similar institution to make funds available to a borrower without using their capital. A small or medium-sized bank might prefer to use storage credits and make money from the initiation fee and selling the loan rather than earn interest and fees on a 30-year mortgage. The housing market crash between 2007 and 2008 had a dramatic impact on the granting of storage credits. The mortgage market dried up because people could no longer afford a home. As the economy recovered, so did the acquisition of mortgages, as did the granting of storage loans. Warehouse loans are similar to accounts receivable financing for industrial sectors, although collateral is generally much greater in warehousing loans. The similarity lies in the short-term nature of the loan. Mortgage lenders receive a short-term revolving line of credit to supplement mortgages, which are then sold to the secondary mortgage market.

A storage line of credit is made available to mortgage lenders by financial institutions. Lenders rely on the eventual sale of mortgages to pay off the financial institution and make a profit. For this reason, the financial institution that provides the inventory line of credit carefully monitors the progress of each loan with the mortgage lender until it is sold. In warehouse lending, a bank takes care of applying for and approving a loan, but receives the funds for the loan from a warehouse lender. If the bank then sells the mortgage to another creditor on the secondary market, it receives the funds that it then uses to repay the storage lender. The bank benefits from this process by earning points and original fees. Warehouse loan is an asset-based business loan. According to Barry Epstein, a mortgage consultant, banking regulators typically treat inventory loans as lines of credit that give them a 100% risk-weighted classification. Epstein suggests that inventory lines of credit be classified this way, in part because the time/risk exposure is several days, while the time/risk exposure for mortgage notes is in years. Warehouse loans are not mortgages. A warehouse line of credit allows a bank to finance a loan without using its own capital. A warehouse loan is a line of credit granted to a lender.

The funds are used to pay off a mortgage that a borrower uses to buy real estate. .