Warehouse Agreement Finance
When granting storage credits, a bank supports the application and approval of a loan, but receives the funds for the loan from a stock lender. When the bank then sells the mortgage to another creditor on the secondary market, it receives the funds that it then uses to repay the stock lender. The Bank benefits from this process by collecting points and original fees. A stock line of credit is a line of credit used by mortgage bankers. This is a short-term revolving credit facility that is extended by a financial institution to a mortgage to finance mortgages. Inventory loans are commercial loans based on assets. According to Barry Epstein, a mortgage consultant, bank supervisors generally treat stock loans as lines of credit that give them a 100% risk-weighted classification. Epstein proposes that credit listing storage lines be classified in this way, in part because the time risk is days, while the time-risk risk for mortgages is in years. Stock credits are not mortgages.
A stock line of credit allows a bank to finance a loan without using its own capital. For example, an electric battery manufacturer has exhausted its entire line of credit and needs an additional $5 million to expand it. She asks and finds a bank willing to offer a loan through storage financing. The bank accepts the large stock of unsold car batteries as a company guarantee and these batteries are transferred to a third-party controlled warehouse. If the company does not pay the loan, the bank can start selling the batteries to cover the credit. On the other hand, the company can repay the loan and begin to regain possession of its batteries. Because it is a secure loan, stock financing is often less expensive than other types of borrowing. The stock of stock is credited by contract to the lender, so that the lender, if it does not pay, can put the inventory on the market and sell it to recover the loan.
This form of credit is often cheaper because the lender would not be involved in long legal controversies to recover the loan in the same way they would if the loan was not secured. The cycle begins with the lender accepting a credit application from the real estate buyer. Then, the lender insures an investor (often a large institutional bank) to whom the loan is sold, either directly or through securitization. This decision is usually based on the interest rates issued by an institutional investor for different types of mortgages, while a lender`s choice of stock for a given loan may vary depending on the type of credit products accepted by the store provider or investors of the loan authorized by the stock lender to be on the line of credit. The fall in the housing market between 2007 and 2008 significantly affected storage credits.