In addition to providing home mortgages, large commercial banks have specialized in providing short-term funds to mortgage banking companies in order to enable them to originate mortgage loans and hold the loans until the mortgage banking company can sell them in the secondary market. This type of financing is commonly referred to as:

a. loan underwriting.

b. warehousing.

c. mortgage pipeline.

d. loan servicing.

The correct answer is b. warehousing.

Explanation:

The Warehouse concept within the scope of structured finance is, according to its own name, the storage of a set of assets with the purpose of securitizing them later. The Warehouse has been a technique widely used in the years prior to the start of the so-called 'subprime crisis'. The Warehouse allows the originator of the assets a 'bridge' financing between the granting of loans (or other type of assets) to the debtors and the wholesale financing in the capital markets.

In a simplified way, the usual process of a Warehouse is as follows: first, the lender grants a financing line to a vehicle (Special Purpose Vehicle) specially designed for this purpose, and this in turn, grants the funds to the final lender and originator of the assets. Subsequently, as the originator grants new assets (for example, loans), they are transferred to the vehicle. It is the so-called ramp-up phase of the Warehouse. Finally, once the volume of assets reaches a certain size, the Warehouse line is refinanced. Normally, refinancing is done through securitization bond issues.