VIRTUAL BANKING MEANS providing financial services by coordinating inputs from different contributors into final form for the consumer. There is no clearer example than the residential mortgage loan industry. The tasks of origination and funding, processing payments, accounting and servicing, and securitization and secondary marketing are functionally disaggregated to an unusually high degree.

While some financial institutions still perform all of the processing of residential mortgage loans, it is far more likely today that different companies participate in the different sections of the business. Independent mortgage brokers, or mortgage banking subsidiaries of banks or thrifts, may originate the loans. Banks may fund the loans and "warehouse" them until they are sold to secondary-market investors. Their profit comes from origination and servicing fees and from interest rate margins. About 60% to 70% of all new residential loans are "pooled," purchased by government-chartered secondary investors, and securitized into mortgage-backed securities. Servicing rights can also be traded among banks, often several times during the life of the loan.

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