A warehouse is the inventory of mortgages that have been closed (i.e., no more in the pipeline) and are parked for sale in the secondary market. Once a mortgage is closed and the final documents are obtained, a mortgage moves out of the pipeline and ends up in the warehouse, where it is either held for sale to potential investors (the lenders), or shipped to a prearranged buyer.

The mortgage inventory can either be committed or non-committed. A mortgage banker or firm may restrict the amount of non-committed inventory as per its applicable policies. Held for sale (HFS) loans in the warehouse are usually marked to market at a certain frequency (at least every quarter). The exercise may involve  write-downs and write-ups, depending on the market situation. However, total market value on records, in the case of accumulated write-ups, may be limited to an upward boundary being the actual cost.

On the other hand, pipeline or mortgage pipeline describes mortgages that are in the process of being originated. Origination involves creating a loan (e.g., a mortgage loan) and selling it to another party against origination fees. This process (loan origination) usually gives rise to a derivative product of a specific type: a security or product that derives its performance (cash flows) from that of another (e.g., mortgage-backed securities, MBSs). While in the pipeline, mortgage brokers face the so-called pipeline risk.

In a nutshell, pipeline refers to mortgages that are in the process of being originated, while warehouse describes the inventory of mortgages that have been closed and are offered for sale in the secondary market. Making a distinction between the pipeline and the warehouse, as two different stages related to origination, is essential because mortgages are exposed to completely different types of risks, particularly given those that are already closed and those that have not, or might not, close.

A mortgage leaves the pipeline and enters the warehouse, once it (i.e., the mortgage) is closed and the final documents are obtained, in which case it may either be held for sale and marketed to investors, or transferred to a prearranged buyer.