Mark-to-market
Mark-to-market is a facility provider’s right to revalue pledged loans at current market value. If values fall, the borrowing base shrinks and the lender may have to post cash or collateral.
How mark-to-market works
Federal Reserve researchers describe how master repurchase agreements for warehouse lines typically let the provider mark pledged loans to market. If rates rise sharply, for example, a loan’s value falls; if the marked value times the advance rate drops below what is owed, the provider can make a margin call. The provider usually decides the value, sometimes with a dispute mechanism.
For private loans there is rarely a quoted market price, so marks may reflect the provider’s view of note pricing, a new appraisal or broker opinion, the borrower’s payment status or a construction project falling behind.
Why it matters to a private lender
A mark-to-market clause turns a credit facility into a liquidity risk. A loan that is performing and well secured can still trigger a cash demand if the provider marks it down. The same research notes that, in other markets, mark-to-market collateral requirements have historically led market and financing conditions to worsen together.
Questions to ask: who sets the value and how often, whether marks apply only to impaired loans or to all loans, and how long you have to cure.
Example
Hypothetical. A $500,000 bridge loan sits on a line at a 75% advance ($375,000). After a local downturn the provider marks the loan at $450,000; 75% of that is $337,500, so the lender owes $37,500 to cure.
See the warehouse line alternative for funding with no marks.
Where Lender Capital fits
Lender Capital places first-lien, business-purpose real estate loans with capital partners. You apply once, then submit each loan with the full file. We send it only to capital partners whose criteria it fits, one partner funds the whole loan at closing and it is assigned to them. You keep your points (less the placement fee), earn the spread above the partner’s rate and service the loan. You pay a placement fee only when a loan funds.
Lender Capital is a business-to-business platform. This page is general information, not legal, tax or securities advice. Terms of warehouse lines and other funding sources vary by provider; confirm them with each provider and your counsel.