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Residential Mortgage Lending:
Principles and Practices, 6e
Chapter 4
THE MORTGAGE LENDERS
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Objectives
• After completing this chapter, you should be able to:
– Explain which mortgage lenders are most important in residential mortgage
lending as originators and which are investors.
– Explain how actions taken by the federal government aided in the
development of the various residential mortgage lenders.
– Identify the sources of funds for each of the lenders.
– Compare and contrast the activities and investment philosophies of the
various lenders.
– Describe how commercial banks, mortgage companies and the two thrifts are
organized and regulated.
– Explain why credit unions believe they must get involved in residential
mortgage lending.
– Outline the types of risks lenders mortgage lenders must manage to protect
their own investments.
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Residential Lenders
•
•
•
•
•
Mortgage Bankers / Brokers
Commercial Banks
Savings Institutions
Savings Banks (SBs)
Credit Unions
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Mortgage Banker Functions
• Originates, processes, underwrites and closes all types of
residential mortgage loans,
• Arranges construction financing,
• Warehouses closed residential mortgage loans,
• Sells residential loans, either as whole loans or
participations,
• Sells to private investors or secondary mortgage market,
• Pools residential mortgages into mortgage-backed
securities.
• Services the loans after sale.
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PRIMARY MORTGAGE MARKET RISKS
● Credit risk
● Interest rate risk
● Prepayment risk
● Liquidity risk
● Portfolio risk
● Collateral risk
● Compliance risk
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What Do You Think?
• Explain which mortgage lenders are most
important in residential mortgage lending
as originators and which as investors.
•
Discuss the major difference between
mortgage brokers/bankers and portfolio
lenders.
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What Do You Think?
•
The mortgage broker is a major originator of residential
mortgages. Explore the inherent conflict a mortgage
broker faces when originating a mortgage loan.
•
Why are mortgage bankers tied so closely to
commercial banks?
•
Which mortgage lender originates the majority of
FHA/VA mortgage loans? Why is this the case?
How has the number and organization of mortgage
lenders changed over the past ten years?
•
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Check Your Understanding
1. The type of financial institution that is the largest holder
of residential mortgage debt.
2. This mortgage lender is a financial intermediary, but not
a depository.
3. The majority of each year’s residential originations are
made by this lender.
4. Its deposits and loans are generally short-term.
5. Purchasers of mortgages or insuring/ guaranteeing
agencies impose the only restrictions on residential
mortgage lending for this lender.
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Check Your Understanding
6. Is the largest originator of FHA/VA loans each year.
7. This lender is limited as to whom it can grant a
mortgage loan.
8. It is the largest of all mortgage lenders in number of
institutions and assets.
9. This lender borrows money to lend on mortgages by
selling commercial paper, mortgage loans or
warehousing mortgages.
10. This classification of mortgage lender leads all mortgage
lenders in originating conventional loans.
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Check Your Understanding
11. This lender is only directly supervised by HUD.
12. Although this lender is a major mortgage lender, it must
borrow money to lend.
13. It is the financial institution that provides much of the
funds used by mortgage bankers.
14. It has only recently become a meaningful originator of
residential mortgage loans.
15. It was forced into mortgage lending by a change in the
competition in consumer lending.
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