Mortgage banks, unlike their mortgage broker counterparts, are able to directly provide loans to their customer base. This is an extremely important strength for these types of businesses given that they do not need to source capital from a third-party financial institution in order to issue a mortgage to a home buyer or property buyer. This allows for a substantial amount of control over the lending process. Additionally, mortgage banks are able to produce interest income from held loans while concurrently generating substantial premiums when a loan is sold to an institutional investor. The gross margins generated by a mortgage banker substantially higher than that of a mortgage brokerage. Additionally, these businesses typically have much stronger economic stability during times of economic recession given that they can hold seasoned loans on their books.
For weaknesses, mortgage banks do face substantially more financial risks given the fact that they maintain a warehouse line of credit that can have a fluctuating interest rate. These businesses are able to render immediate lending decisions, but it does carry some risk for the Met mortgage banking institution. Additionally, these businesses typically have substantially higher regulatory fees and compliance issues than their brokerage counterparts.
For opportunities, most mortgage banking firms expand by developing strong relationships with third-party agents that operate in a brokerage capacity on behalf of the business. Additionally, many mortgage banks expand their operations simply by acquiring additional warehouse lines of credit allows them to provide more loans to the general public.
For threats, rising interest rates can have a substantial impact on the mortgage banks profitability. This is especially true of the business maintains a portfolio of seasoned mortgages that are kept on the books in order to produce interest income. As such, a qualified aid mortgage banker will use appropriate forwards, swaps, and related contracts in order to reduce the risks associated with holding these loans. Default risk is also a threat for these businesses. Competition in the mortgage make banking market is substantial, and these firms must find ways to differentiate themselves from third parties.