To secure a mortgage, a bank typically follows a structured process involving loan approval, funding, and risk management. First, the bank assesses the borrower’s creditworthiness, income stability, and property value through underwriting. If approved, the bank funds the loan directly or sells it to investors via securitization, converting it into mortgage-backed securities (MBS). This allows the bank to retain a service fee or pass the risk to third parties.

Banks use this approach primarily to optimize capital efficiency and mitigate risk. By offloading mortgages to secondary markets, banks free up capital for new loans and reduce exposure to default risks. Data from the Federal Housing Finance Agency (FHFA) shows that over 90% of U.S. mortgages are securitized, with MBS issuance averaging $1.5 trillion annually since 2020. The 2014 qualified mortgage (QM) rule further incentivizes this practice by streamlining underwriting for loans meeting specific criteria, ensuring compliance while reducing litigation risks. Additionally, the Mortgage Bankers Association reports that banks’ net interest margins have expanded by 15-20 basis points since 2019, partly due to efficient risk transfer. Securitization also aligns with regulatory goals, such as the Dodd-Frank Act’s emphasis on liquidity and transparency in financial markets. Ultimately, this model balances profitability, regulatory compliance, and systemic stability.