A mortgage bank is a state-licensed banking body that makes mortgage loans directly to customers.

Generally, a mortgage bank uses funds from the secondary mortgage market such as Fannie Mae, Freddie Mac, or other large mortgage servicing companies.

They require secondary market funds because a mortgage bank is a non-depository institution, which means they do not receive income from deposits, as a savings bank does.

A mortgage bank can vary in size.

Some mortgage banking companies are nationwide. Some may originate a large loan volume exceeding that of a nationwide commercial bank.

Their two primary sources of income are from loan origination fees, and loan servicing fees (provided they are a loan servicer).

Many Mortgage bankers are choosing not to service the loans they originate.

By selling them shortly after they are closed and financed, they are entitled of earning a service released premium. The secondary market investor that buys the loan will earn income for the servicing of the loan for each month the loan is kept by the borrower.

Unlike a federally chartered savings bank, a mortgage bank generally concentrates only in making mortgage loans.

They do not take deposits from clients. Their funds come primarily from the secondary wholesale market.

Examples of the secondary market lenders most known are Fannie Mae, and Freddie Mac.

A mortgage bank generally functions under the different banking laws applicable to each state they do business in.

Whereas a federal bank may operate under federal law, a consumer may have additional rights under the applicable state banking law in terms of consumer protection.

Mortgage Bankers can be very competitive in mortgage lending as they specialize in only lending, and do not have to subsidize any losses in other departments such as traditional banking.

At the same time they often do not have the same access to low cost adaptable rate mortgages which are typically associated with federal banks and access to federal money.