What is Mortgage Banker?
236 reads · Last updated: December 5, 2024
A mortgage banker is a company, individual, or institution that originates mortgages. Mortgage bankers use their own funds, or funds borrowed from a warehouse lender, to fund mortgages. After a mortgage is originated, a mortgage banker might retain the mortgage in a portfolio, or they might sell the mortgage to an investor. Additionally, after a mortgage is originated, a mortgage banker might service the mortgage, or they might sell the servicing rights to another financial institution. A mortgage banker's primary business is to earn the fees associated with loan origination. Most mortgage bankers do not retain the mortgage in a portfolio.
Definition
A mortgage bank is an entity, such as a company, individual, or institution, that issues mortgage loans. They use their own funds or borrow from warehouse lenders to provide these loans. After issuing a loan, a mortgage bank may keep it in its own portfolio or sell it to investors. Additionally, they may service the loan or sell the servicing rights to other financial institutions. The primary business of a mortgage bank is to earn fees associated with loan origination.
Origin
The concept of mortgage banks originated with the development of financial markets, particularly in the mid-20th century, as the housing market expanded and financial instruments evolved. Mortgage banks emerged to meet the growing demand for home loans and to enhance liquidity through financial market operations.
Categories and Features
Mortgage banks can be categorized into two main types: self-funded banks and warehouse lending banks. Self-funded banks use their own capital to issue loans, while warehouse lending banks rely on borrowing from other financial institutions. Features of mortgage banks include flexible loan products, high approval speed, and the ability to manage risk by selling loans. Their advantages lie in quickly responding to market demands, but they are also sensitive to market fluctuations.
Case Studies
A typical example is Quicken Loans in the United States, a large mortgage bank that primarily offers loan services through an online platform. Quicken Loans attracts many customers with its fast approval process and flexible loan products, managing risk by selling loans to investors. Another example is Wells Fargo, which not only issues mortgage loans but also provides loan servicing and reduced losses during the financial crisis by selling bad loans.
Common Issues
Investors using mortgage bank services may encounter issues such as fluctuating loan rates, strict loan approval processes, and the quality of loan servicing. A common misconception is that all mortgage banks retain loans in their own portfolios, whereas most banks sell loans to manage risk.
