Repurchase facility
A repurchase (repo) facility finances loans by having the lender sell them to the provider with an agreement to buy them back later at a higher price. Many warehouse lines are documented this way.
How a repo facility works
In a repurchase facility the lender (the repo seller) transfers loans to the provider (the repo buyer) for cash and agrees to repurchase them on a set date or on demand. The difference between the sale and repurchase prices works like interest; the gap between the loan value and the cash advanced is the haircut. Federal Reserve researchers note that since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, mortgage-collateralized warehouse lending has been eligible for accounting and legal treatment as repurchase agreements, with the originator as repo seller.
The Bankruptcy Code’s definition of a repurchase agreement (11 U.S.C. § 101(47)) expressly includes mortgage loans, which matters because qualifying repos receive special treatment if the seller files for bankruptcy.
Repo facility vs. warehouse line
A “warehouse line” describes the purpose: short-term funding for loans until they are sold. A repo facility describes one legal form. A warehouse line can be a repo or a secured loan. Repo documentation usually gives the provider stronger rights to mark loans to market, make margin calls and keep or sell loans if the lender defaults.
Why it matters to a private lender
Read the master repurchase agreement as closely as the term sheet. Mark-to-market rights, margin call deadlines and default triggers decide how the facility behaves in a downturn. Ask counsel how the structure would be treated in your situation.
Compare structures on the warehouse line alternative page.
Sources
- Kim, Laufer, Pence, Stanton and Wallace, “Liquidity Crises in the Mortgage Market,” Federal Reserve Board FEDS 2018-016 (warehouse lines as repurchase agreements, mark-to-market margin calls, covenants, guarantees, 364-day terms)
- 11 U.S.C. § 101(47), Bankruptcy Code definition of “repurchase agreement” (includes mortgage loans)
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.