A mortgage company is a firm engaged in the business of originating and/or funding mortgages for residential or commercial property. A mortgage company is often just the originator of a loan; it markets itself to potential borrowers and seeks funding from one of several client financial institutions that provide the capital for the mortgage itself.
That, in part, is why many mortgage companies went bankrupt during the subprime mortgage crisis of 2007-2008. Because they weren't funding most of the loans, they had few assets of their own, and when the housing markets dried up, their cash flows quickly evaporated.
Some mortgage companies do offer turnkey mortgage services, including the origination, funding and servicing of mortgages. The factors that differentiate one mortgage company from another include relationships with funding banks, products offered and internal underwriting standards.
The Equal Credit Opportunity Act prohibits credit discrimination based on age, race, color, religion, national origin, gender, marital status or because you get public assistance. It’s also illegal for lenders to discourage you from applying or to impose different terms or conditions because of these factors. Finally, it prohibits lenders lenders from denying mortgages to retirees if all standard criteria are met – things like your credit score, the size of your down payment, your liquid assets and your debt-to-income ratio.
Although it is unclear how long the trend will continue, positive economic data indicates that for the immediate future homebuyers can continue to benefit from low mortgage interest rates.
The Big Three
Here are three of the major national players on the mortgage scene.
Wells Fargo & Company
San Francisco-based Wells Fargo (NYSE: WFC) is an internationally recognized name in the mortgage industry, and the largest overall: In the fourth quarter of 2015, it originated $47 billion in home loans, which represented 12.7% of all mortgages. It offers the usual menu of mortgage products – fixed-rate, adjustable-rate, FHA, VA, military, jumbos, refinance and home equity lines of credit (HELOCs) – as well as nonconforming loans with special features for purchasers of high-value properties. For example, WFC's jumbo loans feature flexible buydown options that allow customers to make lower payments during the early years of a mortgage. Other products allow customers to combine their mortgages with home-equity loans. Its online platform was upgraded recently to improve its processing capabilities, and you can now apply and track your loan application online from your computer, smartphone or tablet. The company’s website has a substantial amount of educational material to help you learn about your mortgage options, plus you can compare rates and loan options, and calculate your payments.
Even though much of the application is done online, they do offer a home mortgage consultant to help you through the process.
Bank of America Corporation
Bank of America Corporation (NYSE: BAC), originated $17 billion in mortgage loans in 2015, which also marked a turnaround for the Charlotte, North Carolina-based lender: It posted earnings of $21.1 billion for that year, its highest since 2006. In February 2016, Bank of America appeared intent on expanding its customer base by introducing a new 3% down payment product for borrowers who might not otherwise qualify for mortgages. Bank of America looks beyond traditional credit scoring methods to assess applicants who demonstrate responsibility based on other criteria such as rent and gym payment history. As compared to FHA 3% loans, Bank of America's version of the product will not require borrowers to pay for private mortgage insurance.
Nationstar Mortgage Holdings
Nationstar Mortgage Holdings, Inc. (NYSE: NSM) is one of the largest non-bank mortgage lenders of 2016. The loan originator and servicer, based in Coppell, Texas, has more than 2.5 million customers and a loan portfolio of over $400 billion. The lender offers borrowers a diverse array of mortgage product options including FHA, VA and Fannie Mae, USDA and jumbo loans. In 2015, Nationstar launched Xome, a real estate exchange service accessed through a mobile app. Xome allows customers to search real estate listings, apply for a mortgage and track other home purchasing activities such as title and closing in the app interface. In February 2016, the lender beat expected earnings when it announced fourth-quarter 2015 earnings of $78.9 million or 73 cents per share. In February 2016, Nationstar announced that it would change its name to "Mr. Cooper," but the rebranding has yet to occur.
The Best Mortgage Companies
Identifying the biggest mortgage companies is easy, but who are the best mortgage companies? That depends, somewhat, on how a potential homeowner likes to operate. Many people prefer to go through the mortgage process in person, rather than by phone or over the Internet. For some, it may be easier to ask questions when they are face to face with a lender – plus it may mean more personalized service.
If that sounds like you, a good place to start is your local bank where you already have accounts. The people there already know you and value your business – both of which can help speed up the process and ensure you won’t be left high and dry days before closing.
Among the brick-and-mortar institutions, one that often gets cited is TD Bank, which offers a number of mortgage products including fixed-rate, adjustable-rate, jumbos and government loans, plus its own TD Right Step Mortgage for buyers who meet low-to-moderate income requirements (or if the property you’re purchasing is in a low-to-moderate income area). To get prequalified, you can call a TD Bank mortgage advisor or visit a TD Bank near you (many have extended hours and are open on Saturdays and Sundays). You will need a signed purchase and sale agreement to start your application, and once it’s submitted, TD Bank says it will get back to you with next steps within 24 hours, and will have a loan estimate of your closing costs within three business days of your submitting an application.
As noted with Wells Fargo, many banks offer an online application process. If, however, you're comfortable going completely digital, there are several web-based mortgage lenders. Because they lack overhead, they can often provide better interest rates, proponents say.
Quicken Loans is a Detroit-based lender that has become a household name thanks to an impressive branding effort. The company is known for having competitive rates and several unique mortgage products not offered by its competitors. It offers mortgages in every state across the country, and it’s one of the largest online retail mortgage lenders, according to National Mortgage News, a publication that assembles quarterly rankings for the mortgage industry. Its mortgage product offerings include fixed-rate, adjustable-rate, FHA, jumbo, VA, reverse mortgage and YOURgage – which offers repayment terms that you can customize beyond the typical 15- and 30-year mortgages provided by most companies. You can choose any loan term from 8 to 30 years (in one-year increments) and get a fixed rate. This can be especially advantageous to those refinancing a mortgage: If you have, say, 23 years left on your current loan and want to refinance but do not wish to reset your term to 30 years, or take out a 15-year loan (which will bring higher monthly payments), you can obtain a 23-year loan, thus maintaining your existing term but at better rates.
Quicken also offers a Rocket Mortgage. Everything from the initial application and credit check to scheduling your home appraisal is done online. (If you get stuck along the way, you still have the option of calling a toll-free number and speaking to a live loan officer.) It's a completely online process that allows you to be approved for your home purchase in minutes. The company aims to close a majority of its loans within 30 days, and it has an A+ rating with the Better Business Bureau (BBB).
Guaranteed Rate offers an online mortgage application process that is similar to Quicken Loans' Rocket Mortgage. You can even complete your initial application and view your credit scores with the three major bureaus for free, all on your smartphone. Based on what your credit qualifies you for, the mobile app allows you to select an interest rate and fee structure, and lock it in early in case rates increase. In most cases, you have the option to pay a higher up-front origination fee to receive a lower interest rate, or you can pay a lower fee, sometimes even no fee, and take a higher rate. (The general rule of thumb is, the longer you are planning to keep the mortgage, the more you should pay up front for a lower rate, since paying less interest benefits you more over time. Guaranteed Rate, as of 2016, was rated A-plus by the Better Business Bureau and received majority five-star reviews on finance and real estate websites such as Bankrate.com and Zillow.com.
LoanDepot is a direct mortgage lender, meaning the company itself provides the funds at closing rather than simply serving as a middleman, farming the loan out to a third-party. There is one fewer person that has to be paid, which often translates to a better deal. Along with its competitive rates, loanDepot offers the ability to obtain a rate quote on its website in seconds. The company employs a no-steering policy, prohibiting its loan offers from trying to talk borrowers into a different type of loan to earn a bigger commission check. The company is rated A-plus by the Better Business Bureau.
In an era when red tape and bureaucracy have stretched the mortgage process longer than most consumers feel is necessary, fast closings are a big selling point for loanDepot. Moreover, the company's "no steering" policy promises that no loan officer will ever try to steer you into a different loan than the one you want in order to earn a higher commission. Even if you have had some hard times or slip-ups with your bills in recent years, a mortgage from loanDepot may not be out of reach: The company offers approvals to customers with credit scores as low as 580.
Mortgage Lenders of America
This private mortgage lender and mortgage servicer is recognized as one of the fastest 5,000 growing companies in the United States. It has provided funding for over 25,000 borrowers since its founding in 2000. Based in Kansas City, Kansas, it is authorized to fund mortgages in 34 U.S. States, mostly located in the west, central and southern states.
The company offers a wide range of mortgage products for primary residences, second homes and investment properties. It offers popular government-backed loans through the Federal Housing Administration (FHA), Veteran Affairs (VA) and the U.S. Department of Agriculture (USDA), along with offers conventional and refinance home loans. However, it does not offer conforming loans from the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corp. (Freddie Mac).
Credit scores required for these loan products start at a minimum 620 for VA and FHA loans, and 640 for USDA and conventional loans.