Mortgage banker

Key Takeaways

• A mortgage banker funds loans with its own money and closes them in its own name.
• After closing, a mortgage banker either keeps and services the loan or sells it to an investor on the secondary market.
• A mortgage broker never funds a loan. RCW 19.146.010 defines the broker as a person who assists a borrower in obtaining or applying to obtain a residential mortgage loan.
• In Washington a company lending its own funds is licensed under the Consumer Loan Act, chapter 31.04 RCW, and RCW 19.146.020 exempts that business from the Mortgage Broker Practices Act.

What It Means

A mortgage banker is a lender that closes loans with its own money. The company takes the application, underwrites the file, funds the loan at the closing table, and its name goes on the note and on the security instrument as the lender. That single fact is the whole distinction between a banker and a Mortgage Broker, who never funds anything and instead matches a borrower with someone else's money for a fee.

What happens after closing gives the term its shape. A mortgage banker has a finite amount of capital, so holding every loan on its own books would stop it from lending again. Most sell their closed loans into the Secondary Mortgage Market, to Fannie Mae, Freddie Mac, or a private investor, which returns the cash and funds the next borrower. The banker often keeps the servicing rights, meaning it still collects payments, runs the escrow account, and answers the borrower's calls even though an investor now owns the debt. None of that changes the borrower's rate, term, or balance. It changes who owns the loan and sometimes where the payment is mailed. Our explainer on interest rates and Washington home sales covers why lenders move loans this way.

How It Works in Washington

Washington splits the two roles into two licensing chapters, and the split follows whose money is at risk. The Mortgage Broker Practices Act, chapter 19.146 RCW, defines a mortgage broker at RCW 19.146.010 as a person who, for direct or indirect compensation or gain, assists a person in obtaining or applying to obtain a residential mortgage loan, or who holds himself or herself out as being able to do that. Assisting is the activity being licensed there, and the chapter defines a residential mortgage loan as a loan primarily for personal, family, or household use secured by a mortgage, deed of trust, or other consensual security interest on a dwelling.

A mortgage banker is doing something different, so its license comes from somewhere else. RCW 19.146.020 provides that a person doing business under the consumer loan act is exempt from chapter 19.146 RCW for that business, and the Consumer Loan Act, chapter 31.04 RCW, is where the lender's license lives. RCW 31.04.035 states that no person may engage in any activity subject to that chapter without first obtaining and maintaining a license, and RCW 31.04.015 places the program under the director of financial institutions. For a real estate broker the practical test comes at the offer stage: when you read a buyer's financing letter, the company on the letterhead tells you which of the two you are dealing with, and whether the money is theirs. Our guide to loan qualification letters covers what else that letter should tell you.

Example

Ashley Nguyen is buying a $650,000 condominium in Bellevue with $130,000 down and a $520,000 loan. Her lender, Cascadia Home Lending, holds a Consumer Loan Act license and wires its own $520,000 to escrow on closing day, so the Promissory Note and the deed of trust name Cascadia as the lender. Six weeks after closing, Cascadia sells the loan to an investor for cash and keeps the servicing contract. Ashley receives a notice that ownership transferred, but she keeps paying Cascadia, and her 30-year term, her rate, and her $520,000 starting balance are exactly what she signed. Had she used a mortgage broker instead, the broker would have shopped the file to several lenders for a fee, and a different company's name would have appeared on the note at closing.

Common Mistakes and Exam Traps

• A mortgage banker lends its own funds. A mortgage broker arranges a loan funded by someone else, which is why the two are licensed under different Washington chapters.
• Selling a loan on the secondary market does not change the borrower's rate, term, or balance. It changes who owns the loan.
• Owning a loan and servicing a loan are separate jobs. A mortgage banker can sell a loan and still collect the payments.
• The secondary market is where existing loans are bought and sold. The primary market is where the borrower and the lender meet to originate the loan.