Risks Associated with Mortgage Banking: Liquidity Risk
Posted on April 13, 2009
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Liquidity risk is the risk to earnings or capital from the inability of banks to fulfill their obligations as they fall due, without unacceptable losses. Liquidity risk includes the inability to unplanned or manage changes in funding sources. Liquidity risk also arises from bank failures to recognize or address changes in market conditions, the ability to liquidate the assets quickly and with minimal loss of value.
In the mortgage business was credit and liquidity risk of the transaction weakness cause problems if the bank fails to pay or loan services in a way that meets the needs of investors. As a result, banks may not be able to sell shares or rights to service mortgages to generate funds. In addition, investors can ask the bank to buy back loans sold to investors that are not exactly bank guarantor or serviced.
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