Mortgage Bank
Author: Terri Ewing
Published: July 30, 2008
Mortgage Bank Defined
A mortgage bank is a retail mortgage originator that sells loans directly to the public and funds those loans with their own money. Unlike a mortgage broker who also sells loans directly to the public but must use the funds of a wholesale lender to close, a mortgage bank uses its own money for closing.
A mortgage bank does not have to disclose the money they make from increasing the rate (called service release premium or SRP) because they use their own money. A mortgage broker (Click To See Definition - Mortgage Broker) does have to disclose this amount called yield spread premium or YSP.
A mortgage bank will very quickly bundle up your loan along with other similar ones and sell them to the secondary market. They get paid the extra from your higher rate when they sell. That is why at closing you won’t know how much they made from your higher rate because they don’t actually make it until about 30 days later when they sell your loan.
Examples of mortgage banks are companies like Countrywide or Wells Fargo and mortgage divisions of your local bank. Big home builders have mortgage companies they want you to use when you buy their new home that operate as a mortgage bank. There are also big brokers that can operate as a bank by getting a line of credit to fund their loans at closing. And of course the only reason they would take on that extra risk is to hide the yield spread premium from you.
Click the link to read more about mortgage bank vs mortgage broker
Author: Terri Ewing
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