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Frequent Questions About Mortgage and Warehouse Lending

How does the mortgage banker get paid?

A mortgage banker is paid after the sale of the loan to the secondary market investor and remittance of the warehouse advance and fees. FirstFunding reconciles each transaction so that our customers can see their net loan revenue immediately.

What operational changes occur when a mortgage broker becomes a mortgage banker?

Very few changes, as a mortgage banker you will now be responsible for ordering the wire, funding authorization and post-closing.

How is being a mortgage broker different than being a mortgage banker?

The primary difference is control. The mortgage banker has more control over disclosures, ordering appraisals, pricing and profitability.

Why is being a mortgage banker beneficial?

Mortgage bankers generally have more control over their revenue stream. Mortgage bankers are able to pass through fees, charge discount points and in general have more control of the customer experience.

What is net funding and why is it used by FirstFunding?

Net funding is the temporary holding back or "netting" out of identified amounts relative to the loan amount. In other words, it is a temporary offset of amounts that will be paid to or on behalf of one party by the other party when funds are advanced or exchanged. For example, for a given $200,000 loan, the charges and prepaid interest payable to the mortgage originator total $2,000. FirstFunding would net out the $2,000 from the loan amount and send $198,000 ($200,000 -$2,000 = $198,000) to settlement agent for closing. The originator does not lose the $2,000. The netted $2,000 is counted toward the haircut required by FirstFunding and the originator receives the $2,000 (plus any premium) when the subject loan was sold to an investor in the secondary market.

What is a haircut?

The "haircut" is the amount of the loan that the warehouse lender requires to be funded by the originator, frequently expressed as a percentage of the loan amount. For example; a 1% haircut means that the warehouse lender will fund up to 99% of the loan amount (1% + 99% = 100%). This does not mean that the originator has to bring his own additional funds to a given loan closing. Many warehouse lenders including FirstFunding utilize the net funding of all originator fees and amounts and allows such netted amounts to be counted toward the satisfaction of the haircut requirement. For example, if an originator had origination charges payable from closing, and those origination charges equaled 1% (or more) of the loan amount, FirstFunding would generally consider the 1% haircut requirement to have been satisfied since the origination charges would be netted from the loan amount as part of the calculation of funds needed for closing. The originator would receive the cash proceeds from his origination charges (plus any premium) when the subject loan is sold to an investor in the secondary market.

The settlement agent, escrow agent and the title company and the title insurance company are the same entity, right?

Sometimes, but not most times. The settlement agent is a provider of settlement services. An escrow agent is a provider of funds accumulation and disbursement services. The term "title company" is sometimes used to refer generically to the settlement agent, the escrow agent, and/or the party actually providing the title underwriting services, which include title research and title commitment issuance services. Title underwriting is not necessarily the same entity that provides the actual title insurance coverage. The title insurance company is the party who provides the actual title insurance policy coverage. In most cases, on most loans, one or more of the various title-related entities are independently owned.

What is advance rate?

The advance rate is generally considered to be the amount that the warehouse lender is willing to advance on a given loan. It is usually expressed as a percentage of the loan amount. For example; a warehouse lender willing to fund $198,000 for use in the closing of $200,000, the warehouse lender is said to have an advance rate of 99% ($198,000 /$200,000 = 99%)

What is the difference between being a non-delegated correspondent and being a correspondent lender?

In general, a correspondent lender will be responsible for the credit and compliance underwriting of a file. A non-delegated correspondent lender will not make credit and compliance underwriting decisions but will have the secondary market investor perform those functions on their behalf.

What is wet funding?

For a "wet" funding, the loan funds are generally available at the settlement agent at the time the borrower executes the loan documents. Before electronic signature technology, this was when the borrower signed the loan documents with wet ink, hence the reference to the term "wet funding." Wet funding rules differ from state to state. Some states do not allow wet fundings. Some only permit them on select types of loans. In a wet-funded purchase money mortgage, the property seller will receive funds right away with the executed documents delivered to the mortgage banker after closing. Wet loans expedite the purchasing process by allowing the sale to occur before the paperwork is delivered to the mortgage banker. However, the added benefit of fast transactions comes at the price of increased risk. Because the seller receives funds before the paperwork is approved, the possibility of fraud and a loan default is greater.

What is dry funding?

A mortgage loan origination where the funds are supplied after all of the required sale and loan documentation has been completed and reviewed by the mortgage banker. In the days before electronic signatures, the borrower's wet ink signature dried during the time the mortgage banker reviewed the executed loan documents, hence the term "dry funding." For the buyer and seller, dry loans provide more insurance that the transaction will be completed without problems and with less risk of fraud or mistakes. Conditions surrounding the requirements of dry funding differ from state to state. Some states mandate that all loans be funded via dry funding. Others only require certain kinds of loan to be dry funded. In a dry-funded purchase money mortgage, the seller will not receive any money until all necessary paperwork has been reviewed by the lending financial institution. Waiting for the documentation to be processed before any funds are transferred ensures the legitimacy of the sale. This process helps to deter fraudulent activities in real estate transactions.

What is a bailee letter and why is it necessary?

The bailee letter is the written documentation between the bailor (warehouse lender on its own behalf or on behalf of itself and the mortgage originator) and bailee (the secondary market mortgage investor) where the terms of the bailment arrangement are set forth for all parties. The bailee letter notifies the bailee (mortgage investor) of the bailor's (warehouse lender's) priority interest in a given original residential mortgage loan presented to the mortgage investor for review and/or possible purchase. The bailee letter is one of the critical components used by a warehouse lender to protect its perfected interest in a loan for which it has provided warehouse financing. In the event that the mortgage investor does purchase the subject residential mortgage loan, the bailee letter usually also serves the mortgage investor with instructions on where and how to transmit the funds used to purchase the described residential mortgage loan. Also, if the mortgage investor purchases the subject loan, the bailment arrangement terminates when the purchase is completed.

Isn't the warehouse lender's collateral the same as the property securing the loan?

They are not the same. The mortgage originator loan is secured by a lien on the real property described in the security instrument. The warehouse lender is secured by a priority lien in the loan receivable evidenced by the loan documents executed at closing.

What is a dwell fee?

A dwell fee is a penalty fee assessed to the mortgage originator because a given loan has become stale on the warehouse facility as an outstanding item. In other words, the warehouse advance for a given loan has been outstanding longer than usually permitted by the warehouse lender.

Is the mortgage banker's interest rate lock with the consumer the same as the interest rate lock with the secondary market investor?

They are not the same. The mortgage banker's rate lock with the consumer is a contract between those two parties and it does not involve the secondary market mortgage investor. The mortgage banker's interest rate lock agreement with the secondary market mortgage investor is between those two parties and does not involve the consumer.

A bond is required for licensure in certain states. Isn't this the same bond that may be required by the warehouse lender?

Many people can be confused by the word "bond." In the case of licensure, the bond is usually one that benefits the state issuing the license to the mortgage originator and it is usually on a form promulgated or otherwise approved by the state issuing the license. Bonds benefiting the states are generally required in lieu of cash deposits for consumer recovery funds and/or audited net worth requirements. Generally the surety bonds issued in connection with a licensure serve as a financial support to pay claims that might be levied by a consumer due to acts committed by the licensed party. A bond issued as a condition of licensure and which is issued for the benefit of the license-issuing state are not the same as fidelity bond coverage customarily issued to a mortgage banker.

What experience is required?

FirstFunding has no specified minimum experience requirements when an application is accompanied by a referral letter from a known secondary market investor's account.

What are the net worth requirements?

Generally, the minimum net worth requirement for any customer is the greater of;

  • $75,000 (unaudited)
  • The requirements of the state in which the originator is to be licensed as a mortgage banker
  • The secondary market investor's net worth requirement for correspondent lenders
Do you require audited financials or quarterly statements?

No.

How do you determine the size of the line?

FirstFunding generally establishes the warehouse facility with its customers based on their estimate of their production ability with the investors on our list of approved investors. We do not generally limit the size of the warehouse facility to a multiple of the customer's net worth.

What is a floor rate?

A floor interest rate or "floor rate" is generally the minimum interest rate for accrual on a credit or funding facility. In the case of warehouse funding, the floor rate will be the minimum rate (annualized) at which interest will accrue on the then outstanding warehouse advances.

Can my advance rate change? Why?

FirstFunding maintains a graduated, but competitive, fee schedule for jumbo loans due to the greater capital requirements and the potential for greater capital risk.

Can I lower my costs?

Yes. There are a number of ways that a customer can reduce FirstFunding's fees. We offer innovative volume and loan quality incentives. The more business a customer conducts with FirstFunding, the more they can potentially save. The better quality the files, the faster they are purchased by the investor, the more the customer can save. Similarly, FirstFunding developed unique fulfillment service levels that enable the customer to choose what service level (and by extension - the associated cost) he wishes to operate with a given secondary investor.

What are the renewal requirements?

We maintain a short list of a few items that we need to renew your facility on its anniversary. We will prompt you for these items prior to the renewal date. Most of our customers are surprised at how simple it is.

Do you have a real-time online platform where I can monitor the status of my loans?

Yes - it is called FUEL (FirstFunding Utility and Electronic Ledger). FUEL is entirely internet-browser based. It is available 24/7 and can be accessed from anywhere in the world.

How do you reconcile my proceeds?

Our staff performs a reconciliation of every transaction using a proprietary tool within our online platform known as FUEL so you understand your net proceeds on every file.

Is training provided?

Yes. FirstFunding provides on-demand online training through FirstFundingUniversity and live training when you order your first warehouse advance.