Mortgage Loan Originator (MLO) Licensing Practice Test

Warehouse funding is a short-term funding arrangement that allows mortgage lenders to obtain funds from a commercial bank in the form of a line of credit. This type of funding is commonly used by mortgage lenders to finance their loan originations before those loans are sold to investors in the secondary market.

In warehouse funding, lenders can draw on the line of credit to finance the closing of loans, allowing them to continue making loans without needing to use their own capital upfront. Once the loans are sold to investors, the lender pays back the line of credit, thus replenishing their funds for future loan origination.

This structure is particularly important in the mortgage industry, as it provides liquidity to lenders and allows them to efficiently manage cash flow, which is critical in an industry where loan origination can scale quickly.

Understanding warehouse funding's mechanism helps clarify the roles within the mortgage lending process and highlights the strategic financial management required by lenders to operate effectively.