What is a Mortgage Bank?

Malcolm Tatum

A mortgage bank is a financial institution that specializes in providing residential and commercial mortgage loans to consumers. Typically licensed at the state level in the United States, this type of bank funds the loans directly from its own capital. In some cases, the loan is later sold to investors, a process that is usually referred to as selling loans in the secondary market. Choosing this strategy allows the mortgage bank to quickly recoup the investment and use the capital to fund other loans that can also be sold in the secondary market.

Some mortgage banks operate on a national scale.
Some mortgage banks operate on a national scale.

It is not unusual for a mortgage bank to operate on a national scale. When this is the case, the bank may be required to obtain licensing for operation in states or provinces within that nation. The bank often has access to a larger reserve of capital that can be drawn upon by any of the local branches, according to the internal policies and procedures currently in place. As with other banking institutions, the mortgage bank is subject to governmental regulations in terms of how loans are written and the terms that may be included in those loan contracts. One crucial difference is that some banking regulations that apply to other federal and state banks will not apply, since a mortgage bank does not offer bank accounts such as checking and savings accounts and does not routinely accept deposits from its customers.

Mortgage banks can usually be very competitive with specific types of mortgage loans.
Mortgage banks can usually be very competitive with specific types of mortgage loans.

While a mortgage bank does not offer the range of services provided by other banking institutions, it can usually be very competitive with specific types of mortgage loans. Individuals and companies seeking to obtain financing for real estate purchases may find that the flat rates offered through these banks are highly competitive with offerings from other types of banks, and may even include terms that are more attractive to loan applicants. At the same time, the mortgage bank may not be as competitive when it comes to adjustable rate or floating rate mortgages, since those loan types are often connected with federal banks and the resources that back those institutions.

When considering the purchase of real estate, buyers would do well to consider the rates and terms offered by the local mortgage bank. Comparing those rates and terms to what is offered by other types of banks will often make it possible to quickly determine which one offers loan plans that are more to the liking of the applicant. For people who want to lock in a flat rate of interest for the mortgage rather than go with a floating rate, working with a mortgage bank is often a good idea.

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