What is the dominant loan type that most depository institutions originate and keep?

The most prevalent loan type that depository institutions originate and retain is the Fixed Rate Mortgage. This type of mortgage is preferred by banks and credit unions because it provides a steady and predictable income stream over the life of the loan. Fixed Rate Mortgages are typically long-term loans, which means that institutions can rely on consistent payments that are not subject to fluctuations in interest rates, making them less risky from a financial management perspective.

In comparison, Adjustable Rate Mortgages (ARMs), while popular, carry the risk of changing interest rates and can lead to higher payments over time, potentially impacting borrowers' ability to repay. Interest-only mortgages allow borrowers to pay only interest for a certain period, which can lead to a balloon payment later; however, they are less common as they present more risk. Subprime mortgages are aimed at higher-risk borrowers and often come with higher interest rates and fees, making them less likely to be retained by depository institutions due to the associated risk of default.

Overall, Fixed Rate Mortgages provide the stability and security that depository institutions seek as they build their loan portfolios.