warehouse line of credit
can be an effective way
to grow your business.
Warehouse lines provide originators with
access to capital to fund their own loans —
to become a lender. For one thing, being a
lender and funding your own loans provides
more flexibility in compensation. As a lender
you are no longer restricted to the maximum
3 percent compensation that applies to originators who only broker loans to lenders.
The capability to earn more money comes
with more responsibility, however. As an originator, your responsibilities are fairly straightforward: Take the application, ensure the
application is submitted within regulatory
compliance guidelines and stay on top of your
three-day disclosure requirements.
That process gets a bit more involved when
you become the lender. When you’re the
lender, you become responsible for all of the
initial, interim and final disclosures; quality
control to make sure the loan complies with
state and federal regulations; and, of course,
selling the loan to an investor to repay your
warehouse line, among other things.
As with all major financial services, some lend-
ers are more qualified than others, so you will
need to do some research first. It’s important
to know what to expect before you approach
a warehouse bank with your application. Even
more important, however, is learning what
those banks will expect from you. At mini-
mum, a warehouse bank will want to see a
record of success and the right ratios in your
For starters, most warehouse banks will look
at your employment history. A strong track
record of sound mortgage origination is one
key factor banks consider before deciding to
issue a warehouse line. They will want to see
at least three years of origination experience
before they will take a candidate seriously.
Additionally, you’ll have to meet the warehouse bank’s net worth and liquidity requirements. Banks may vary but your typical
warehouse-line-to-net-worth ratio should be
no higher than 15:1. If you’re requesting a
warehouse line of $2 million, for example, you
would need a minimum net worth of $133,333.
Your liquid assets should be at least 30 percent
of that net worth, or a minimum of $40,000
in this example.
Most warehouse banks also will expect
you to have some equity in each loan. Banks
will usually fund up to 99 percent of the note
amount. Any additional funds needed at disbursement will have to be supplied by you.
They also may require you to deposit funds in
an interest-bearing pledge account as a sign
of good faith and minimal protection against
loss. The pledge account will be considered as
part of your liquidity requirements.
Finally, it is important to cover your bases.
You’ll need to provide evidence of all the
requisite licenses, certifications, registrations
and coverage. Lending licenses will need to
be obtained for each state in which you wish
to originate loans. Registration with the Mortgage Electronic Registration System, or MERS,
also will be required. You also will need to
provide a copy of your approval for the
Uniform Collateral Data Portal, or UCDP, from
both Fannie Mae and Freddie Mac. Additional
requirements apply if originating government loans.
Insurance policies for errors and omissions
as well as directors and officers liability, or a
fidelity bond, also will be required. You also
should create a quality-control plan that will
not only satisfy the regulators, but also protect
you and your company Being organized now
could expedite the application process later.
The time frame required to transition from
an originator to a lender varies by state, because it is based on each state’s licensing
and regulatory requirements. Once you have
everything ready, the warehouse-line approval
process should only take three to four weeks
from the time the application is submitted.
Continued on Page 116 >>
<< Warehouse continued from Page 113