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Mortgage Bank vs. Commercial Bank; What’s the Difference?

Mortgage Bank vs. Commercial Bank; What's the DifferenceMortgage Banks

Mortgage banks only underwrite, fund, and sometimes service loans. They do nothing else. They hold no deposits, and they fund all of their loans with large warehouse lines of credit. Mortgage banks earn money by selling mortgages at a premium on the secondary market within a few weeks of funding.

Who:
Quicken Loans, Loan Depot, Guaranteed Rate, Guild Mortgage, Freedom Mortgage, Caliber Home Loans, RPM Mortgage, Summit Funding, CMG Financial. JVM Lending is part of a mortgage bank.

Activities:
Originating, underwriting, funding, and servicing mortgages.

Loan Officers:
NMLS licenses required. All of JVM’s Client Advisors, Mortgage Analysts, and Closing Specialists have NMLS licenses.

Source/Cost of Funds:
Warehouse lines of credit (employed to fund loans). A mortgage bank’s cost of funds is higher than a commercial bank’s because the warehouse lenders charge interest and fees.

Advantages:
Better service in most cases, because mortgage banks are usually smaller, less regulated, less bureaucratic and/or more nimble than big banks. Appraisals are another advantage, as many mortgage banks maintain internal appraisal management companies with more talented appraisers.

Disadvantages:
Interest Rates. Many mortgage banks have higher interest rates because they have a higher cost of funds and they must support higher commission expenses (for loan officers and middle managers). JVM is able to offer lower rates because our overall costs are much lower (we have no commissions or middle managers) and because we have direct access to investors with exceptionally low rates.

Note: Mortgage banks must be able to sell all of the loans they fund, or they will not only be unable to make money, but they can also go out of business entirely because they cannot simply leave a loan in their portfolio. Therefore mortgage banks must make sure every file is 100% compliant with guidelines and regulations – to ensure salability.

Commercial Banks

Who:
Wells Fargo, B of A, Chase, Flagstar, Citi, U.S Bank

Activities:
All traditional bank activities such as checking and savings accounts, commercial lending, etc., and mortgage banking.

Loan Officers:
No licensing required. When NMLS licensing rules were imposed, many loan officers who could not pass their tests moved from mortgage banks to commercial banks.

Source/Cost of Funds:
Deposits.

Advantages:
Deposits provide a very low cost of funds. Commercial banks are not vulnerable to unsalable loans like mortgage banks are because they can retain unsalable loans in their “portfolios.”

Disadvantages:
Bureaucratic and slow; unlicensed loan officers are often less knowledgeable; very high fixed overhead; appraisal quality is lower.

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Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 1197176, NMLS# 310167