We know that sometimes business and financial terminology can be needlessly complicated. For example, when most people hear the phrase “warehouse mortgage lending,” they’ll reasonably think it’s a loan to buy a big building that you store stuff in. Today, we’re going to explain what this term means and why it’s relevant.
Warehouse mortgage lending actually refers to a specialized line of credit provided to mortgage bankers by some institutional lenders and specific banks. Suppose a mortgage lender wants to open up their own storefront in order to provide mortgage loans to borrowers. In order to do that, they’ll need cash, and they can receive it from a line of credit. When the lender provides funds to a borrower, they draw money off their line of credit in order to fund the loan. They also provide the mortgage note to the warehouse lender as collateral to secure their credit line. The note will be sold to either the warehouse lender or to an investor, and the line will get paid down. The mortgage banker gets paid chiefly by charging origination fees when the loan is made.
There are two kinds of funding. Dry funding is a mortgage loan where the lender supplies documentation from the real estate loan closing to its warehouse lender or investor. They will review the documentation for completeness before they accept the loan transfer. Wet funding refers to mortgage loans where the closing of the real estate loan and the fund from the warehouse lender or investor occurs simultaneously.