A mortgage bank is a

bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...

that specializes in originating and/or servicing mortgage loans. In the United States, a mortgage bank is a state-licensed banking entity that makes mortgage loans directly to

consumers A consumer is a person or a group who intends to order, or use purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. Th ...

. The difference between a mortgage banker and a

mortgage broker A mortgage broker acts as an intermediary who brokers mortgage loans on behalf of individuals or businesses. Traditionally, banks and other lending institutions have sold their own products. As markets for mortgages have become more competitive, ...

is that the mortgage banker funds loans with its own capital. Generally, a mortgage bank originates a loan and places it on a pre-established warehouse line of credit until the loan can be sold to an investor, which are typically large institutions. The credit risk is typically absorbed by the Agencies, which include

Fannie Mae The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the New ...

Freddie Mac The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is an American publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons, Virginia.Ginnie Mae. The process of selling a loan from the mortgage bank to another investor is referred to as selling the loan on the

secondary market The secondary market, also called the aftermarket and follow on public offering, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. The initial sale of ...

. This is in contrast to the

primary market The primary market is the part of the capital market that deals with the issuance and sale of securities to purchasers directly by the issuer, with the issuer being paid the proceeds. A primary market means the market for new issues of securities, ...

, which for mortgages typically refers to the bank buying the mortgage deed of trust from the homeowner for the face amount of the loan, adjusted for discount points and other price adjustments. Mortgage banks sell the loans because the funds received pay down their warehouse lines of credit which enables the mortgage bank to sustain their lending activities. A mortgage bank is not regulated as a federal or state bank and does not take deposits from consumers or businesses. To support their operations, a mortgage bank acquires a certain amount of equity, which is then used to secure the warehouse line. The primary source of funds, however, comes from the warehouse lender. A mortgage bank can vary in size. Some mortgage banking companies are nationwide. Some may originate a large loan volume, exceeding that of a nationwide

commercial bank A commercial bank is a financial institution that accepts deposits from the public and gives loans for the purposes of consumption and investment to make a profit. It can also refer to a bank or a division of a larger bank that deals with whol ...

. Many mortgage banks employ specialty servicers for tasks such as repurchase and fraud discovery work. Their two primary sources of revenue are loan origination fees and

loan servicing Loan servicing is the process by which a company (mortgage bank, servicing firm, etc.) collects interest, principal, and escrow payments from a borrower. In the United States, the vast majority of mortgages are backed by the government or governm ...

fees (provided they are a loan servicer). Many mortgage bankers are opting not to service the loans they originate. By selling them shortly after they are closed and funded, they are eligible to earn a " service released premium". The

investor that buys the loan will earn revenue for the servicing of the loan for each month the loan is kept by the borrower. Unlike a federally chartered

savings bank A savings bank is a financial institution that is not run on a profit-maximizing basis, and whose original or primary purpose is collecting deposits on savings accounts that are invested on a low-risk basis and receive interest. Savings banks ha ...

, a mortgage bank generally specializes only in making mortgage loans. Many do not take deposits from customers and call themselves Mortgage Lenders, to avoid being confused with a typical bank. A company desiring to enter the mortgage business often chooses to be a mortgage banker vs. a mortgage broker primarily to earn yield spread premiums. Mortgage bankers risk their own capital to fund loans and therefore do not have to disclose the price at which they sell mortgages to another company. Mortgage brokers, on the other hand, earning the same yield spread premium, disclose the additional fee to the consumer because the yield spread premium becomes an additional fee earned and therefore disclosable under federal and state law. A mortgage bank generally operates within the framework of the diverse banking regulations that are specific to each state in which it conducts its operations.

History

The market share for mortgage banks in the US of single-family mortgage loans went from 20% in 1980 to over 41% in 1991 during the

Savings and Loan Crisis The savings and loan crisis of the 1980s and 1990s (commonly dubbed the S&L crisis) was the failure of approximately a third of the savings and loan associations (S&Ls or thrifts) in the United States between 1986 and 1995. These thrifts were b ...

References

New York State Mortgage Banker List
{{Authority control

Banks

History

See also

References