Mortgage bankers make a real estate mortgage loan and then sells it to a long-term investor.
The process begins with locating borrowers, next qualifying them, then preparing the necessary loan papers, and finally making the loans. Once the loan is made, it is sold for cash to a life insurance company, pension or trust fund, savings institution, or government agency. The mortgage banker is usually retained by the mortgage purchaser to service the loan, that is, to collect the monthly payments and to handle such matters as insurance and property tax impounds, delinquencies, early payoffs, and mortgage releases.
Mortgage bankers often take the form of mortgage companies, that vary in size from one or two persons up to several dozen. As a rule, they are locally oriented, finding and making loans within 25 or 50 miles of their offices. This gives them a feel for their market, greatly aids in identifying sound loans, and makes loan servicing much easier. For their efforts, mortgage bankers typically receive 1% to 2% of the amount of the loan when it is originated, and from ¼ to ½ of 1% of the outstanding balance each year thereafter for servicing. On very large loans, such as a major shopping center or a large office building, the servicing fee drops to 1/10 of 1%.
Mortgage banking is not limited to mortgage companies. Commercial banks, savings and loan associations, and mutual savings banks in active real estate areas often originate more real estate loans than they can hold themselves, and these are sold to other investors. Mortgage bankers are important sources of FHA and VA loans.
Mortgage brokers, in contrast to mortgage bankers, specialize in bringing together borrowers and lenders, just as real estate brokers bring together buyers and sellers. The mortgage broker does not lend his own money, nor does he usually service the loans he has arranged. The mortgage broker’s fee is expressed in points and is usually paid by the borrower.
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