Warehouse Line of Credit is a line of credit provided by a financial institution to mortgage lenders to fund mortgage loans until they are sold on the secondary market.
A warehouse line of credit is a short-term revolving credit facility. Mortgage lenders use it to borrow funds from banks or other institutions. They use these funds to originate new mortgage loans. This includes the period from loan closing to the sale on the secondary market.
After originating and closing the mortgage loans, lenders sell them to secondary market investors. These investors include GSEs like Fannie Mae or Freddie Mac, or private investors. Lenders then use the sale proceeds to repay the warehouse line of credit.
Warehouse lines of credit usually secure against the mortgage loans themselves. Financial institutions providing the credit set eligibility criteria and requirements. The terms, including the interest rate and repayment conditions, vary by agreement.
Warehouse lines of credit are essential in the mortgage lending industry. They provide short-term financing to lenders, supporting continuous loan origination. This facilitates fund flow in the housing market until the sale of the loans on the secondary market.
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