MORTGAGE WAREHOUSE LINE
Updated information on our Mortgage Warehouse Line Program
Mortgage Warehouse Program
Program Guidelines (subject to change without notice)
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Net Worth Requirement: |
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Program 1: Audited, tangible net worth > $250K
Program 2: Un-Audited or tangible net worth < $250K but not < $100K, which should be in the form of cash. Program 2 Applicants are limited to a maximum line of $5M |
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Minimum & Maximum Facility: |
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$2M to $20M
Higher rates and fees apply for $2M per month |
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Guaranty of Payment and Performance: |
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Yes: Owners of 25% or more of the company |
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Leverage: |
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Between 15:1 to 20:1 |
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Years in Business: |
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2 years minimum |
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Profitability: |
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Required |
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Financial Statements Requirements: |
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Program 1: Audited FYE, current interim and personal financial statements (signed and dated not older than 1 year)
Program 2: Un-Audited FYE, current interim and personal financial statements (signed and dated not older than 1 year) |
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Insurance Coverage: |
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Required Errors & Omission and Fidelity, $300,000 each |
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Type Loans Accepted: |
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Single Family, Conventional, Gov, Sub-limits for Sub-prime and 2nds (piggy-back only) and HELOC’S; Jumbo’s to $1M, Jumbo’s > $1M may be allowed with prior approval and lesser funding percentage. |
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Minimum Credit Score: |
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FICO score 540, lower FICO’s considered for quality clients |
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Allowed Time in Facility |
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60 Days, maximum; Jumbo’s 45 days maximum; all loans increase in rate and fee @ 45 day aging. |
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Pricing: |
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Libor or Prime based available, please contact your sales representative |
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Volume Funding |
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Rates & Fees Discounted for Volume Funding |
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No reserve deposit required no legal fees and no renewal fees! |
BENEFITS OF PROGRAM
Our warehouse team has been in the mortgage warehouse business for over 60 years collectively, and our clients tell us that our service is what significantly distinguishes us from other mortgage warehouse lenders. |
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· Sub-limits for sub-prime loans |
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· Invaluable Training and Support |
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· Same day funding |
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· Friendly, partnership-type approach |
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· Libor or Prime based pricing available |
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· Up to 100% funding |
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· Sub-limits for 2nd liens loans |
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· Online management reports |
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· Same day shipping |
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· Multi-state funding |
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· Highly responsive personnel |
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WHAT YOU NEED TO KNOW
Why should I warehouse?
- Presently exempts mortgage lenders from disclosure of SRP's
- Loans close in your own name; elevates your company's marketing image to that of major lenders
- Allows you to control the closing process
- Potential for positive arbitrage (you earn more on the note than you pay for the warehouse line)
- Potential for increased SRP's
- May provide access to investor loan programs that are not otherwise available to mortgage brokers
How does a warehouse line work?
- The mortgage banker originates locks (with the investor) and processes the loan.
- The mortgage banker or the investor underwrites the loan.
- The mortgage banker draws closing documents in its own name and schedules the closing at an insured title company or insured closing attorney.
- The mortgage banker requests funds from its warehouse lender via a funding request form including: the purchase commitment, underwriting approval, first two pages of the appraisal, application, score page of the credit report, and an insured closing letter.
- The loan funds and closes. The original note is delivered to the warehouse lender from the title company. Such procedure is mandatory.
- The title company sends to the mortgage banker a copy of the note and all other closing documents.
- The mortgage banker delivers the loan package to the investor.
- The warehouse lender ships the original note to the investor including a trust receipt with wiring instructions to wire the purchase proceeds to the warehouse lender.
- The warehouse lender receives the purchase proceeds, credits the warehouse line, deducts interest and fees, and deposits the net proceeds into the mortgage banker's operating account at the warehouse lending bank.
ADVANTAGES
- Loans closed in your (the mortgage banker's) name and sold to an end investor are "secondary" market transactions. Servicing released premiums received by the mortgage banker are not required to be reported to the borrower on the HUD-1.
- As a mortgage banker, you schedule and control the funding and closing date.
- Being in control of closings provides more flexibility and control over loan volume.
- As a mortgage banker you earn interest at the note rate during the warehouse period, and it generally offsets the interest charged by the warehouse lender. Frequently, the interest that you earn on the note is greater than the interest you pay for the warehouse line. Such occurrence is traditionally known as "positive arbitrage." In addition, when loans are closed in the mortgage banker's name, they can be sold in the secondary market for a price that is sometimes higher than that paid by wholesale investors.
RISKS
Risk of Repurchase:
When a mortgage banker closes loans in its own name, it assumes greater responsibility for the quality of the mortgage. Although repurchase risks can be reduced through diligent underwriting and quality control, some repurchases may be unavoidable. Should this happen, the mortgage banker will need enough cash in order to repurchase the loan. Mortgage warehouse lenders look for liquidity (cash & cash equivalents) in your company during the approval process.
Market Risk:
Mortgage bankers may hold loans in their warehouse line for a maximum of 60 days, although their average "turn time" must be considerably less than 60 days. During that period, interest rates may fluctuate and the price the investor may pay for a loan may move significantly up or down. That is why it is mandatory that the mortgage banker locks its loans with the investor, prior to requesting funding proceeds from its warehouse lender.
Investor Risk:
Purchase commitments are not always iron clad. You need to develop good relationships with several investors.
Fraud Risk:
Risk of fraud is ever present. As a mortgage banker, you will need to employ application screening and quality control procedures that significantly mitigate the risk of fraud.
Overhead Commitment:
As a mortgage banker, you may need to hire additional staff for funding, warehousing, secondary marketing and accounting. Such additional expenses should be taken into consideration.
PROGRAM HIGHLIGHTS
- Invaluable Training and Support
- Comprehensive Management Reports
- Same Day Funding
- Same Day Shipping
- Competitive Pricing
- Multi-State Funding
- Wet or Dry Funding
- Highly Responsive Service
- Friendly, Partnership-Type Attitude
FREQUENTLY ASKED QUESTIONS
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What are the risks associated with becoming a mortgage banker? |
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Loan repurchases; personal guarantee; warrants and reps to the investor and warehouse lender. |
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Q: |
What are your minimum and maximum warehouse line amounts? |
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The minimum is $2M; the maximum is $20M. |
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What does Southwest Securities, FSB look for when considering a new mortgage warehouse client? |
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The company’s: net worth, credit history, working capital, profitability; management expertise, years in business and attention to quality control. |
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What is the maximum allowed time in the facility? |
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60 days maximum; Jumbo’s 45 days maximum. |
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What are the benefits of transitioning from mortgage broker to mortgage banker? |
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Control of the funding process; exemption from disclosing premiums; possible arbitrage revenue; possibly higher servicing released premiums; may provide access to broader range of investors and loan products; enhanced marketing image. |
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What are the risks associated with becoming a mortgage banker? |
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Loan repurchases; personal guarantee; warrants and reps to the investor and warehouse lender. |
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How much is the warehouse application fee? |
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$1500 of which $750 will be refunded upon funding of the 10th loan, within 90 days of being trained. |
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Is it a requirement that I have experience as a mortgage banker? |
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Experience as a mortgage banker or a mortgage broker is required. |
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How long does it take to get from the application stage to having the ability to draw on the line? |
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Subject to our receiving a fully completed application; including all documents, approximately 2 weeks to be approved (applications for warehouse lines of between $10M - $20M may take slightly longer), with training occurring thereafter. Best estimate, that includes being able to draw on line, would be 3 weeks. |
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What are the basic steps of the warehouse lending application process? |
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- Client fully completes our application
- Prepare your financial statement with our financial statement tool
- Compile the information identified on the Required Documentation Page
- Submit the completed application and Required Documentation to us
- We’ll review your package and contact you if we have any questions
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Are there any areas in the continental U.S., Alaska or Hawaii in which the program is not offered warehouse? |
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Yes. The program is offered nationally, with the exclusion of the following locations:
- New York State
- Dade, Broward, and Palm Beach counties, in Florida
- Puerto Rico
- Virgin Islands
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Are personal guaranties required? |
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Yes. For all owners 25% or more of the company. |
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