What it is:
How it works/Example:
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 . It borrows the money from a warehouse . 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 it matters:
Warehouse lending helps banks make sale of the loans rather than earning interest and servicing the for 30 years.
Often, warehouse require banks to provide collateral, which is usually the bank's marketable securities and the loan documentation proving that it made the loan and sell it.