Is a Mortgage Bank in Your Future?

By Wolcott, Hunter W. | ABA Banking Journal, February 1990 | Go to article overview

Is a Mortgage Bank in Your Future?


Wolcott, Hunter W., ABA Banking Journal


Is a mortgage bank in your future?

Consolidation in the financial industry has impacted the mortgage banking business. New capital requirements, the increasing sophistication of the mortgage customer, and the breaching of traditional geographic barriers have also affected the market.

These factors are taking mortgage banking businesses away from the thrift domination that typified the 1980s. The bulk of these businesses will be in the hands of more diversified, better-capitalized financial services providers in the 1990s.

What it's all about. Mortgage banking is not a single business, but a combination of two functions that may or may not be performed by the same company. Loan production is the retail-oriented process of originating, packaging, and selling mortgages on the secondary market with the view of making a profit or creating valuable servicing rights. Servicing is the investment-oriented process of administering the mortgages for secondary market investors.

Recent changes in risk-based capital rules encourage the securitization of mortgages. A by-product of securitization is that it creates valuable and marketable servicing rights.

The loan production business depends on profits per loan. These profits come from origination fees, gains on the sale of the mortgage, and the value of servicing rights, less the total costs of originating and marketing the loans. Volume and returns tend to be highly cyclical.

When a mortgage bank is sold or liquidated, its loan production operation has a market value only if the market value of the servicing rights it produces significantly exceeds the production costs.

Loan production people usually are presented the choice between holding the servicing rights for a time or selling them immediately into the servicing secondary market. Most bank-owned mortgage companies must periodically sell some of the servicing rights they produce in order to meet demands for current reportable income.

The capital-intensive servicing operation is far more predictable than the production side. It can achieve high total return (a combination of net servicing income, reinvestment income, and any change in market value), capital efficiency, and low yield volatility. Servicing today trades at pre-tax yields of 15% to 20% and more. This is attracting a large number of yield-minded enterprises--such as finance companies and insurance companies--that previously would not have considered buying a mortgage banking company.

The value of servicing rights is usually the largest part of the market value of an integrated mortgage company, and typically accounts for 80% or more of total value. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Is a Mortgage Bank in Your Future?
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.