First Funding Blog

What is a haircut?

The haircut is the amount of the loan that the warehouse lender requires to be funded by the originator. The “haircut” is frequently expressed as a percentage of the loan amount. For example; a 1% haircut means that the warehouse lender will fund up to 99% of the loan amount (1% + 99% = 100%). As with most warehouse lenders, FirstFunding does generally employ a 1% haircut requirement on all loans. However, this does not mean that the originator has to bring his own additional funds to a given loan closing. Many warehouse lenders including FirstFunding utilizes the net funding of all originator fees and amounts and allows such netted amounts to be counted toward the satisfaction of the haircut requirement. For example; if an originator had origination charges payable from closing, and those origination charges equaled 1% (or more) of the loan amount, FirstFunding would generally consider the 1% haircut requirement to have been satisfied since the origination charges would be “netted” from the loan amount as part of the calculation of funds needed for closing. The originator would receive the cash proceeds from his origination charges (plus any premium) when the subject loan is sold to an investor in the secondary market.