Which institution is financed by customer deposits and primarily lends in the form of mortgages?

Which institution is financed by customer deposits and primarily lends in the form of mortgages?

• A. Savings Institutions
• B. Commercial Banks
• C. Securities Firms and Banks
• D. Insurance Companies

Answer: (A)

Depository institutions fund their lending with the deposits they attract from customers, and one type focuses most on mortgage lending. Savings institutions, also known as savings banks or savings and loan associations, rely primarily on customer deposits to fund long-term mortgage loans for home buyers. This deposit-funded, mortgage-centric model distinguishes them from other financial players. Commercial banks also take deposits and can make mortgages, but they serve a broader mix of lending and services beyond just mortgages. Securities firms and banks don’t rely on customer deposits for lending in the same way, since many are more focused on trading, investment banking, or underwriting. Insurance companies collect premiums rather than deposits and invest those funds rather than using them to originate home mortgages. So, the institution financed by customer deposits and primarily lending in the form of mortgages is savings institutions.

Depository institutions fund their lending with the deposits they attract from customers, and one type focuses most on mortgage lending. Savings institutions, also known as savings banks or savings and loan associations, rely primarily on customer deposits to fund long-term mortgage loans for home buyers. This deposit-funded, mortgage-centric model distinguishes them from other financial players.

Commercial banks also take deposits and can make mortgages, but they serve a broader mix of lending and services beyond just mortgages. Securities firms and banks don’t rely on customer deposits for lending in the same way, since many are more focused on trading, investment banking, or underwriting. Insurance companies collect premiums rather than deposits and invest those funds rather than using them to originate home mortgages.

So, the institution financed by customer deposits and primarily lending in the form of mortgages is savings institutions.