But in the process of buying the loans and packaging them up, investment banks retain some risk of loss, including accounting items like loans held for sale, loans held for investment, retained interests in the securitizations themselves, and so-called warehouse loans that keep the origination engines at the small mortgage lenders humming.

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Correspondent lenders employ their own processing, underwriting and closing staff, and use warehouse lines to fund loans.

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Citi also agreed to become Ameriquest's chief "warehouse" lender, providing credit to fund loans and hold them until they are packaged into mortgage-backed securities.

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