A mortgage bank is one which specializes in originating and/or servicing mortgage loans. This state-licensed entity is different from a mortgage broker, in that, it forwards the loans from its own capital. A mortgage broker, on the other hand, sells mortgages; however on behalf of some business entity or bank.

• A mortgage loan is originated by a bank and sold in the secondary market whose major players are institutions such as Fannie Mae and Freddie Mac. This process of selling a loan to a different investor is referred to as selling it in a secondary market. This strategy is used for freeing up more capital so that more loans can be originated by the mortgage banks. This process not only increases the liquidity in the mortgage market but also makes more mortgages available which in turn encourages home ownership.
• Mortgage banks originate these loans from the funding that they receive from a pre-established warehouse line of credit. A warehouse line of credit is nothing but a short term revolving credit that is given by a financial institution to a mortgage bank in order to raise capital for mortgage loans. Therefore these mortgage banks do not raise capital with the help of Federal and state banks and does not accept deposits from businesses or consumers.
• The major sources of revenue for these banks are origination fees and loan servicing fees; however many mortgage bankers do not opt for servicing the loans that they originate. The process of selling these loans in the secondary market leads to earnings for the mortgage bank in the form of service released premium. The investor in the secondary market that buys the loan will earn revenue on it till the loan is kept by the borrower.
• The workings of a mortgage bank are different from a traditional savings bank in that they only specialize in mortgage loans. The majority of the funds come from the secondary mortgage market which comprises of institutions such as Fannie Mae and Freddie Mac. Mortgage banks risk their own capital which is not the case with mortgage brokers and the latter have lesser rights and more restrictions compared to the former.
• These mortgage bankers operate under different laws depending on the state they are operating in. This means although regulated by Federal law, consumers may have additional rights under the state laws. These banks are very competitive in nature and specialize only in lending; however they do not have access to low-cost mortgages such as adjustable-rate mortgages which are usually associated with Federal banks and Federal money.

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