Warehouse Line Of Credit Used By Mortgage Bankers
The Main Difference Between Mortgage Bankers And Mortgage Brokers
Understanding The Loan Process Of Mortgage Brokers
Mortgage brokers originate and process their borrowers. Mortgage brokers have lending relationships with wholesale lenders. Wholesale lenders have their own in-house mortgage underwriters that underwrite files submitted by mortgage brokers. Wholesale lenders work closely with mortgage brokers in closing the loans mortgage brokers originate and process. Borrowers of mortgage brokers close loans using the name of the wholesale lender. The wholesale lender funds the loan of the mortgage broker. Mortgage brokers do not have any liability if the loans that close go bad. However, if the borrower of the loan that closed refinances and/or sells the house and the loan is paid off before six months, they can get a recapture. A recapture is when the mortgage broker needs to give the wholesale lender the commissions they earned back.
Understanding How Warehouse Line Of Credit Is Used And Paid In The Mortgage Process
Mortgage bankers are also referred to as correspondent lenders and/or mini-correspondent lenders. Mortgage bankers originate, process, underwrites, and fund the loans they close. Mortgage bankers close loans using their names. All mortgage bankers have warehouse lines of credit issued by a financial institution such as an FDIC bank. Warehouse lines are not meant for mortgage bankers to use to fund loans permanently. The providers of warehouse lines of credit are financial institutions such as FDIC banks. Mortgage bankers use warehouse lines as a short-term bridge loan from the time the loan funds until the investor in the secondary mortgage market buys the loan. With the proceeds, the mortgage banker will repay the financial institution that issued them the credit line. When the loan is purchased, this is when mortgage bankers make their profit as well. Financial institutions that issue warehouse lines of credit to mortgage bankers make money when the mortgage banker uses the line to fund the loan. The mortgage banker needs to pay the warehouse line back as soon as possible to maximize their profit. The longer the warehouse line is used and does not get paid back, the more interest is paid and the less profit the mortgage banker makes. Without the use of warehouse lines of credit and mortgage loan buyers on the secondary market, mortgage bankers would have a liquidity problem and could not keep on originating more loans.
What Happens After Mortgage Bankers Sell The Loan To The Investor Of The Secondary Market
Mortgage bankers sell loans they find to a larger mortgage banker (normally the wholesale lending partner the mortgage banker has a delegated and/or non-delegated underwriting relationship). The larger mortgage banker who buys the loan retains the servicing rights of the loan and is normally the mortgage servicer. The mortgage servicer sends out mortgage statements and collects payments from borrowers. The larger mortgage banker that bought the loan normally will package up all the loans they purchased by a bunch of smaller mortgage bankers. After packaging the loans, the larger mortgage banker will resell them one more time to a large aggregator on the secondary mortgage market such as Fannie Mae and/or Freddie Mac. Warehouse line of credit is paid after the closed loans are sold. Using warehouse lines of credit enables mortgage bankers not to use their own personal capital to fund loans.