Mortgage Originator

What is a 'Mortgage Originator'

A mortgage originator is an institution or individual that works with a borrower to complete a mortgage transaction. It can be either a mortgage broker or a mortgage banker, and is the original mortgage lender. Mortgage originators are part of the primary mortgage market and must work with underwriters and loan processors from the application date until closing to gather necessary documentation and guide the file through the approval process.

BREAKING DOWN 'Mortgage Originator'

Tallying up what percentage of originations belong to which mortgage originator depends on how an origination is counted. A large percentage of newly originated mortgages are immediately sold into the secondary mortgage market, where they might be counted by the institution that purchases the mortgage in the secondary market as an origination, thus double-counting the origination.

Primary vs. Secondary Mortgage Market

The primary mortgage market is the initial marketplace where the borrower gets together with the mortgage originator, whether a bank, credit union or mortgage broker, to conduct a mortgage transaction. At the closing table, the primary mortgage lender provides the funds to the borrower, which the borrower uses to complete his home purchase.

The primary mortgage market is highly fragmented in the United States. While there are several large firms that originate a large percentage of mortgages, there are thousands of smaller firms and individuals that also account for a large percentage of total mortgage originations.

Once originated, the servicing rights to mortgages frequently get sold from one institution to another. This activity takes place on the secondary mortgage market, termed as such because buying and selling in this marketplace can only occur after a mortgage is already in force. Government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac represent some of the largest buyers on the secondary market. Secondary buyers often package pools of loans into mortgage-backed securities (MBS) and sell them, frequently to investment banks on Wall Street.

Mortgage Originator Differences

Mortgage bankers and mortgage brokers represent two of the most common types of mortgage originators. While the titles sound similar, important distinctions exist between the two. A mortgage banker works for a lending institution that actually funds loans at closing with its own money. Most retail banks and credit unions employ mortgage bankers. A mortgage broker, by contrast, serves as a middleman between the borrower and various mortgage banking institutions. The broker takes the application, checks credit and income, and often handles much of the underwriting and processing but ultimately ferrets the loan out to a lending institution to fund it at closing.

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