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Mortgage banks frequently use the secondary
market to sell loans because the funds received pay down their warehouse
lines of credit which enables the mortgage bank to continue to lend. A
mortgage bank is not regulated as a federal or state bank and does not take
deposits from consumers or businesses. A mortgage bank raises some equity
which it uses to guarantee the warehouse line and the bulk of the funds are
provided by 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. Many mortgage banks employ specialty servicers
for tasks such as repurchase and fraud discovery work.
Their two primary sources of revenue are
from loan origination fees, and loan servicing 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 for earning a service released premium. The secondary
market 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 mortgage bank generally specializes only in making mortgage loans. They do
not take deposits from customers. Their funds come primarily from the
secondary wholesale market. Examples of the secondary market lenders most
known are Fannie Mae, and Freddie Mac.
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 bankres risk their own
capital to fund loans and therefore do not have to disclose the price at
which they sell mortgage 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 discloseable under federal and state law.
[1]
A mortgage bank generally operates under
the different banking laws applicable to each state they do business in.
For a complete list of mortgage bankers by
state, check with the state banking or financial department of each state
individually. Whereas a federal bank may operate under federal law, a
consumer may have additional rights under the applicable state banking law
in terms of consumer protection.
Mortgage Bankers can be very competitive in
mortgage lending as they specialize in only lending, and do not have to
factor in subsidizing any losses in other departments such as traditional
banking. At the same time they often do not have the same access to low cost
adjustable rate mortgages which are typically associated with federal banks
and access to federal money.
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