Chapter 2
Introduction to Mortgage Lending

Learning Objective:  To become familiar with the mechanics behind making a loan, what lenders look for in the process of granting loans and some of the differences between various kinds of lenders.


A. Fundamentals of Mortgage Banking

Mortgage bankers use their own funds, or funds borrowed from a warehouse lender, to fund mortgages. After a mortgage is originated, the loan has to be reviewed for approval in a process called underwriting where the loan is compared to predetermined guidelines that make the loan eligible to be sold.

A mortgage banker might retain the mortgage in their portfolio, or they might sell the mortgage to an investor or agency like Fannie Mae or Freddie Mac. Additionally, a mortgage banker might service the mortgage (collect the monthly payments), or they might sell the servicing rights to another financial institution. Most mortgage bankers do not retain the mortgage in their portfolio.

The distinguishing feature between a mortgage banker and a mortgage broker is that mortgage bankers close mortgages in their own names, using their own funds, while mortgage brokers facilitate originations for other financial institutions. Mortgage brokers do not make the final underwriting decision or close mortgages in their own names.