An Overview of Mortgage Banking

October 15, 2011 by  Filed under: Loans 

Mortgage banking differs from brokering in that the firm itself is providing a loan to a client. A mortgage broker simply act as a liaison between a client and a number of different financial institutions that may or may not be willing to provide a client with a mortgage or related credit facility. One of the primary benefits to working as a mortgage bank rather than as a broker is that these firms have the ability to earn fees that are usually twice as a high. This is due to the fact that a mortgage banking firm has the ability to sell the closed loan to a secondary buyer. A brokerage firm never handles any of the financing that is associated with the closing of a real estate transaction.

Most mortgage banking firms use a warehouse line of credit in order to provide their loans. Typically, this line of credit is similar to an extremely large credit card. In some instances, larger mortgage banks may have up to $100,000,000 at their disposal in regards to providing loans to their clients. In some instances, these banking firms will hold quality loans for a significant period of time so that they are able to create a highly recurring stream of revenue. However, given the current lending market, many mortgage banking firms have turned to immediately selling loans once they have closed. Typically the lag time between a closing and a sale is forty eight to seventy two hours. However, many secondary buyers have become much more diligent as it relates to acquiring closed loans. The massive financial fallout from the housing market was primarily attributed to the fact that many mortgage firms and buyers did not properly complete due diligence. As such, many large financial firms lost tens of billions of dollars when low income and poor credit borrowers defaulted on their mortgages. However, since that time, the government and many regulatory agencies have prevented these toxic loans to be made from mortgage banking firms.

In closing, there are a number of benefits relating to becoming a banker rather than a mortgage broker. Again, the fees are substantially higher, it provides more prestige in regards to working with clients, and your ability to expand your mortgage banking firm is much better than if you are simply acting as a brokerage. One of the primary drawbacks of acting in this capacity is that there are substantially more risks relating to providing loans through your own company name. We will continue to touch on this fact as we progress through this series of discussions.

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