Warehouse Lines of Credit: Drafting Financing Agreements, Custodial Agreements, Reps and Warranties

Perfecting a Security Interest in Mortgage Loans, Analyzing Repurchase Obligations, Bankruptcy Treatment Under Financing Agreements

Recording of a 90-minute CLE webinar with Q&A

Conducted on Thursday, May 11, 2017
Recorded event now available

This CLE program will examine how a warehouse line of credit is documented between a mortgage loan originator and its warehouse lender, the representations and warranties made by the loan originator, and the remedies for breaches. The panel will also discuss perfection of the lender’s security interest in the mortgage collateral, and how the lender’s interest is impacted by the bankruptcy of the loan originator.


Much of the mortgage lending done in the US is facilitated by warehouse lines of credit. A warehouse line of credit is a short-term revolving credit facility extended by a financial institution (usually a bank) to a mortgage loan originator (often referred to a “mortgage banker”) for the funding of mortgage loans. The typical mortgage borrower may perceive the loan originator as the lender and, from a licensing and regulatory perspective, that is entirely accurate. The borrower may be unaware, however, that the loan originator may draw upon on a warehouse line to fund a substantial portion of the underlying mortgage loan.

The warehouse line is documented by a loan and security agreement, master repurchase agreement or other secured lending agreement (the “Financing Agreement”) and, if there is a third party custodian, a Custodial Agreement under which the mortgages funded on the line are deposited and held as collateral for the line of credit. Proper steps must be taken to perfect the lender's security interest in the mortgages delivered in connection with the Financing Agreement. The documents should also provide a procedure for release of each mortgage loan when the loan is sold to a permanent investor and the allocable portion of the line of credit is repaid.

Counsel on both sides of the transaction need to understand the mortgage loan eligibility criteria contained in the Financing Agreement. The loan originator (the “Seller/Borrower”) will agree to certain eligibility criteria and make various representations and warranties with respect to the mortgage loans for the benefit of the provider of the warehouse line (the “Buyer/Lender”). If a mortgage loan fails to remain eligible or breaches a representation and warranty, the Buyer/Lender may be permitted to exercise certain remedies with respect to such mortgage loan including, without limitation, assigning a zero market value to that mortgage loan, making a “margin call” or causing the Seller/Borrower to repurchase the related mortgage loan. Eligibility criteria, mortgage loan representations and warranties, and the related remedies are therefore central aspects of the Financing Agreement, and can be heavily negotiated.

Listen as our authoritative panel reviews the key provisions in the Financing Agreement. They will also discuss delivery of the mortgage loans under the Custodial Agreement, and the proper steps or perfection of the lender’s security interest in the loans. Finally, the panel will provided an analysis of the treatment of the Financing Agreement as a “repurchase agreement,” “securities contract” and/or “master netting agreement” under the Bankruptcy Code.


  1. Importance of warehouse lines in the funding of residential and commercial mortgage loans
  2. Financing Agreements
    1. Parties—Buyer (lender) and Seller (borrower/loan originator)
    2. Conditions to funding—underwriting and legal requirements
    3. Eligibility criteria and representations and warranties
    4. Mark-to-market and margin calls
    5. Repurchase obligations
    6. Other issues
  3. Custodial agreements—perfection of the security interest created under Financing Agreement
    1. Delivery of mortgage documents as collateral
    2. Trust receipt from custodian
    3. Release of mortgage documents upon repayment of warehouse line
  4. Treatment of the Financing Agreement and collateral in the event of bankruptcy of the loan originator


The panel will review these and other key issues:

  • What is a warehouse line of credit and how is it documented?
  • How is the security interest of the Buyer/Lender documented and perfected under the Financing Agreement and the custodial agreement?
  • What are the standard eligibility criteria and representations and warranties required of the loan seller and are they negotiable?
  • How are mortgage loan repurchase obligations and other remedies triggered and enforced under the Financing Agreement?
  • How is the Financing Agreement treated in a bankruptcy of the Seller/Borrower? What about a third party mortgage loan subservicer?


Michael A. Calandra, Jr., Partner
Alston & Bird, New York

Mr. Calandra represents buyers and lenders in repurchase, warehousing and other secured lending facilities in relation to residential and commercial mortgage loans, securities, servicing rights and other financial assets. He also structures financing platforms secured by nonperforming mortgage loans and residential real property and gestation facilities for the origination of Fannie Mae, Freddie Mac and Ginnie Mae mortgage backed securities. He has experience in structuring investment vehicles for the purchase of residential and commercial mortgage loans, manufactured housing, student loans, tax liens and other receivables, the structures of which include the formation and administration of Delaware statutory trusts.

John E. Stoner
Stoner Fox Law Group, Aliso Viejo, Calif.

Mr. Stoner represents buyers/lenders and sellers/borrowers in warehousing and other funding facilities relating to residential and commercial mortgage loans, servicing rights and other financial assets. He also represents buyers and sellers of residential and commercial mortgage loans and servicing rights and mortgage crowd-funding platforms. He has extensive experience in dealing with the legal and regulatory issues related to warehouse facility structures and was one of the primary attorneys involved in HUD’s analysis of related ERISA issues.


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