Warehouse Agreement Finance

Storage credits can simply be seen as a way for a bank or similar institution to make funds available to a borrower without using their capital. A small or medium-sized bank might prefer to use storage credits and earn money with dementia fees and the sale of the loan, rather than earn interest and fees on a 30-year mortgage. Storage credits can be distinguished between “water financing” and “dry financing.” [5] The difference depends on when the lender receives its money from the date the real estate transaction takes place. During “water financing,” the mortgage lender receives the funds at the same time as the loan closes, that is, before the credit documentation is sent to the stock lender. “Dry financing” occurs when the stock credit provider receives credit documentation for verification before sending the funds. Typical maturities held on the stock line, called stay time, are sufficient based on the speed at which investors check mortgages upon purchase after they are tendered by mortgage banks. In practice, this period is usually between 10 and 20 days. Storage facilities generally limit the amount of time a credit can have in the storage line. In the case of loans that become coarser, mortgage bankers are often forced to buy these notes with their own money, waiting for a potential problem with the bill. The International Finance Corporation has set up credit storage lines around the world and developed an operating guide. [1] Storage credits are similar to debt financing for industries, although guarantees are generally much larger when granting storage credits. The resemblance lies in the short-term nature of the loan. A short-term revolving line of credit is granted to mortgage lenders to close mortgages, which are then sold in the secondary mortgage market.

The inventory finance institution accepts various types of mortgage security, including subprime and equity loans, residential or commercial real estate, including types of specialized real estate. In most cases, storage lenders make the loan available for a period of fifteen to sixty days. [3] Stock credit lines are generally rated libor plus spread to one month. [4] In addition, stock lenders generally apply a “haircut” to line of credit advances, which means that only 98% – 99% of the loan amount is financed by them; initial lenders must provide the rest from their own capital. [4] A stock line of credit is made available to mortgage lenders by financial institutions. Lenders depend on the eventual sale of mortgages to repay the financial institution and make a profit. This is why the financial institution that provides the inventory line of credit carefully monitors how any loan with the mortgage lender progresses until it is sold. A commodity company can also improve its solvency, reduce its borrowing costs and perhaps secure more credit if it uses storage funds. This provides a commercial advantage to a similarly sized company without these resources.

Once an investor has been selected, the mortgage banker uses the deposit line of credit to finance a mortgage and sends the credit documentation to the stock credit institution to serve as collateral for the line of credit. The stock lender at this point perfect a security interest in the mortgage note to serve as collateral. When the loan is finally sold to a permanent investor, the line of credit will be repaid by funds wired by that permanent investor to the storage facility and the cycle will start again for the next loan.