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Simple English definitions for legal terms
warehousing
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A quick definition of warehousing:
Warehousing is when a mortgage banker holds onto mortgages until the market gets better and they can sell them for a higher price. It can also refer to a company giving notice to big investors about a plan to buy another company's stock before the public knows, so the investors can buy the stock before the price goes up. This is called a tender offer.
A more thorough explanation:
Definition: Warehousing refers to two different practices:
- When a mortgage banker holds onto mortgages until the resale market improves.
- When a corporation gives advance notice of a tender offer to institutional investors, who can then buy stock in the target company before public awareness of the takeover inflates the stock's price.
Example 1: A mortgage banker holds onto a portfolio of mortgages instead of selling them immediately. This is because the resale market is currently unfavorable, and the banker believes that they can get a better price for the mortgages in the future.
Example 2: A corporation plans to make a tender offer to acquire another company. Before making the offer public, the corporation gives advance notice to institutional investors. These investors can buy stock in the target company before the public becomes aware of the takeover, which can cause the stock price to increase.
Both examples illustrate the concept of warehousing, which involves holding onto assets until the market conditions are more favorable. In the case of mortgages, the banker is waiting for a better resale market. In the case of the tender offer, the corporation is trying to avoid inflating the stock price before they can acquire the target company.