Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market. When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging the borrower a warehouse fee.
The debt secured includes an existing debt already on the property. The payments made to the holder of the wraparound include payments due on the existing loan and the holder must forward the appropriate portion of each payment to the existing noteholder.
