Mortgage Banking

Use Case for Assessing Risk on Mortgage Banking

Why assess the risk? Mortgage banking generally involves loan originations, purchases and sales through the secondary mortgage market. An operational breakdown or general weakness in any part of a bank’s mortgage banking activities can harm its reputation. For example, a bank that services loans for third party investors bears operational and administrative responsibilities to act prudently on behalf of investors and borrowers. Misrepresentations, breaches of duty, administrative lapses, and conflicts of interest can result in lawsuits, financial loss, and/or damage to the company’s reputation. In addition, a bank that originates and sells loans into the secondary market should follow effective underwriting and documentation standards to protect its reputation in the market to support future loan sales. The applicable risks associated with mortgage banking are: credit risk, interest rate risk, price risk, transaction risk, liquidity risk, compliance risk, strategic risk and reputation risk.

Who should assess the risks? Chief Credit Officer, Credit Administrator, Chief Mortgage Lending Officer, Chief Lending Officer, Loan Servicing Mgr., Compliance Officer

How to assess the risk: Rate the KRIs to determine if a threat would successfully exploit a vulnerability and to justify expenditures to implement countermeasures to protect the bank’s assets or reputation. Use the “Focus Risk Assessment” tool for in-depth analysis of risks and mitigation techniques.