Capital Markets Examiner School, Providence, RI

Introduction – Risk Identification in Mortgage Banking Environment

Banks can operate in the life cycle of a mortgage loan at various points and accept various levels of risk.

 The bank could be participating in one piece of the puzzle, or the entire complex process.

 The life of the loan generally extends from its origination to the time it is sold into the secondary market, either directly or through securitization.

 Examiners should assess strategic plans, policies, and documentation to better understand the level of risk the bank has accepted in the process and how it measures, monitors, and controls that risk.

The Pipeline

A mortgage loan in the “pipeline” is in the process of being funded.

 This is where decisions are made on the future of the loan.  Funded, closed mortgage loan can go different directions.  Can stay on the balance sheet or move into the secondary market.

 Decision on servicing rights has to be made  Sell loan, servicing retained  Sell servicing, retain the loan  Sell both