Thursday, August 7, 2008

Mortgage Background:

Depository institutions have traditionally originated residential mortgage loans to hold in their loan portfolios, and mortgage

banking is a natural extension of this traditional origination process. Although it can include loan origination, mortgage
banking goes beyond this basic activity. A bank that only originates and holds mortgage loans in its loan portfolio has not
engaged in mortgage banking as defined here. Those activities are discussed elsewhere in the Comptroller’s
Handbook.
Mortgage banking generally involves loan originations, purchases, and sales through the secondary mortgage market.
A mortgage bank can retain or sell loans it originates and retain or sell the servicing on those loans. Through mortgage
banking, national banks can and do participate in any or a combination of these activities. Banks can also participate in
mortgage banking activities by purchasing rather than originating loans.
The mortgage banking industry is highly competitive and involves many firms and intense competition. Firms engaged
in mortgage banking vary in size from very small, local firms to exceptionally large, nationwide operations. Commercial
banks and their subsidiaries and affiliates make up a large and growing proportion of the mortgage banking industry.
Mortgage banking activities generate fee income and provide cross-selling opportunities that enhance a bank’s retail
banking franchise. The general shift from traditional lending to mortgage banking activities has taken place in the context
of a more recent general shift by commercial banks from interest income activities to non-interest, fee generating
activities.

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