Warehouse lenders' role in mortgage woes

New Century Financial was one of the three biggest subprime lenders in 2006. Then things went south quickly, and New Century declared bankruptcy in early April 2007. Analysts saw the bankruptcy coming a month away -- right after warehouse lenders cut off New Century's flow of money.

All big mortgage lenders -- and especially institutions that don't accept deposits -- rely on warehouse lines of credit. These warehouse lines are like credit cards for mortgage lenders. The mortgage company borrows money from a warehouse line to lend consumers money to buy houses or refinance their home loans. Then the mortgage company sells those loans to investors and repays the warehouse lender. What's left over is profit.

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source: updatere.com