What is Warehouse Lending?

Warehouse lending is credit provided to a mortgage lender to fund mortgages until the lender sells them in the secondary market.

How Does Warehouse Lending Work?

Let's say John Doe goes to Bank XYZ to borrow $200,000 to buy a house. Bank XYZ gives him the loan, but it does not lend him its own money. It borrows the money from a warehouse lender. Two weeks later, when Bank XYZ sells the mortgage to another lender, it receives cash that it uses to repay the warehouse lender. Bank XYZ profits by earning points and origination fees.

Why Does Warehouse Lending Matter?

Warehouse lending helps banks make mortgage loans, especially small- and medium-size banks that prefer to make their money from origination fees and the sale of the loans rather than earning interest and servicing the loan for 30 years.

Often, warehouse lenders require banks to provide collateral, which is usually the bank's marketable securities and the loan documentation proving that it made the loan and will sell it.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.