Takeout commitment
A takeout commitment is an investor’s agreement to buy a loan, or a defined volume of loans, from the originator on stated terms. Warehouse providers rely on it as the exit that repays their advance.
How a takeout commitment works
A warehouse line is built to be repaid when the loan is sold, so providers want to know who is buying. The takeout investor commits to purchase the loan at an agreed price once it closes and meets the investor’s guidelines. The Comptroller of the Currency’s mortgage banking handbook describes two common forms: a best-efforts commitment, where the seller delivers the loan only if it closes, and a mandatory commitment, where the seller must deliver a set dollar volume or pay a pair-off fee for the shortfall.
Federal Reserve researchers note that warehouse covenants may also require loans to be sold within a certain period, which makes a reliable takeout central to keeping the line in good standing.
Why it matters to a private lender
Without a takeout, a loan on a warehouse line has only one exit: payoff by the borrower, which for bridge and construction loans can be many months away. Lenders that hold loans to maturity should expect providers to price that in through lower advance rates, tighter dwell limits or both.
Table funding removes the gap: the capital partner commits before closing and funds at the table, so there is no warehoused period to take out.
Example
Hypothetical. A lender closes a $450,000 bridge loan on its line with a best-efforts commitment from a note buyer. The loan closes, the buyer purchases it within the agreed window and the sale proceeds repay the advance.
Read more about table funding.
Sources
- Office of the Comptroller of the Currency, Comptroller’s Handbook: Mortgage Banking (pipeline and warehouse management, best-efforts and mandatory forward sale commitments)
- 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)
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.