Mortgage Banking Overview and Profit Mechanisms

Mortgage Banking Overview

• Mortgage banking specializes in real estate loans, differentiating them from traditional banking.
• Unlike other banks, mortgage bankers do not rely on depositors for funding but secure capital from different sources.
• Mortgage banks can sell the loans they originate, providing liquidity and capital utilization.

Mortgage Warehousing

• When mortgage bankers secure loans backed by their mortgage inventory, it is termed mortgage warehousing.
• This method allows banks to finance their operations more flexibly and manage their cash flow effectively.

Garn-St. Germain Depository Institutions Act of 1982

• This Act enabled federally chartered savings and loan institutions to offer interest-bearing checking accounts.
• It allowed these institutions to increase interest rates on savings accounts and provide commercial loans, broadening their financial services.

Profit Mechanisms for Mortgage Bankers

• Mortgage bankers generate profits through various streams, including loan points, service fees, and arbitrage.
• Each of these elements contributes to their overall revenue, emphasizing the diverse avenues for profitability in mortgage banking.

Wellenkamp v. Bank of America Case

• The ruling in this case allowed lenders to impose prepayment penalties, which had no limits.
• It addressed the practices surrounding loan assumption and established parameters for lender operations.

Privatized Federal Agency

• Fannie Mae, a former federal agency, was privatized under a federal charter, altering its operation dramatically.
• Ginnie Mae and the Federal Reserve are not privatized entities under similar circumstances.

Fannie Mae Securities

• Securities issued by Fannie Mae are known as Pass Through Certificates or Mortgage Backed Securities.
• These instruments are crucial for investors seeking to invest in the mortgage market.

Conforming Loans in Butte County (2023)

• The conforming loan limit for a single-family residence in Butte County for the year 2023 is $548,250.
• Understanding local limits is critical for compliance in mortgage lending practices.

Mortgage-Backed Securities

• Securities that are supported by mortgages legally and are typically termed as collateralized or secured.
• These financial products play a significant role in the mortgage finance ecosystem.

SWAP Program for Lenders

• The SWAP program allows lenders to trade loans issued by others for more widely sellable participation certificates.
• This program aims to enhance liquidity and facilitate the management of non-performing loans.