How Do Banks Calculate The Mortgage And Automobile Down Payment?
Your down payment cycle starts with the mortgage banker taking your Mortgage loan application OR RETAIL INSTALLMENT CONTRACT from you, the real estate property or Automobile buyer.
Then the loan originator secures an investor (often a large institutional bank or individual bank or government Investor Trust) to whom the loan will be sold, whether directly or through a Securitization as an Off-Balance Sheet Item as a bank Warehouse Line of Credit as the Borrower/DEBTOR to act as a Collateral for the Line Of Credit.
The Warehouse Lender, at this stage, perfects a Security Interest in the Mortgage Note or Retail Installment Contract to serve as Collateral by securitization. Securitization is when the warehouse lender bundles all the loans into a mortgage-back conduit called a tax-exempt Trust.
When the loan is finally sold to a Permanent Investor, the Line of Credit is paid off by wired funds from this permanent investor to the Warehouse Facility and the cycle starts all over again for the next mortgage or automobile loan.
Typical durations that loans are held on the Warehouse Line, called dwell time, which is the length of time generally between 10-20 days. For loans going over dwell, Mortgage Bankers are often forced to buy these Notes or Retail Installment Contracts off the line with their own cash in anticipation of a potential problem with the Mortgage NOTE or Retail Installment Contract.
Unlike in other types of lending, loan originators earn more profit from origination fees or points charged the consumer rather than interest rate spread since the closed Mortgage Loan is sold quickly to an investor, group of investors, or into a conduit Trust. The loan acts like a “Hot Potato” in that it is a liability to the lender.
So it is the bank that is the true DEBTOR/BORROWER, NOT you, that borrows money for the alleged loan from the Warehouse Funding providing institution that accepts various types of Mortgage Collateral, including Subprime and Equity Loans, residential or commercial, including specialty property types.
The Warehouse Lenders in most cases provide the loan for a period of fifteen to sixty days. This is why the original blue inked signed documentation must be sold into the investor trust within 30 days of closing for the Trust to qualify for tax-exempt status.
Warehouse Lines of Credit are usually priced off 1-month LIBOR plus a spread. Also, Warehouse Lenders typically apply a ‘haircut’ to credit line advances to the banks or retail installment originators meaning that only 98% – 99% of the face amount of loans are being funded by the warehouse investors to the bank debtor/borrower or mortgage originator; the Originating Lenders or BANKS have to provide with the remainder from their own Capital which is actually the amount of your down payment that you, the alleged Consumer Borrower, must pay at the escrow closing.
Since Bank investment companies that you call BANKS cannot use their own money, their depositors’ money, or their credit pursuant to Federal Banking Law. This is why the can Securities instead of their credit or other means to give you a so-called alleged and presumed loan.
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This warehouse lending haircut to the BANK or Pretender Lender/Creditor is how your down payment is calculated..
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