What Is a Mortgage Originator?

What Is a Mortgage Originator?

Let me explain what a mortgage originator is. It's an institution or individual that teams up with you, the borrower, to finalize a home loan deal. As the original lender, this could be a mortgage broker or a mortgage banker. We're talking about the primary mortgage market here, where originators collaborate with underwriters and loan processors right from your application until closing. They collect all the required documents and steer the file through approval.

Key Takeaways

You should know that a mortgage originator partners with an underwriter to wrap up your home loan. This includes retail banks, mortgage bankers, and brokers. Since they generate these loans, they're in the primary market, but they usually sell them off fast to the secondary market. Their income comes from fees for originating the mortgage and the gap between the rate you get and what the secondary market pays for it.

How a Mortgage Originator Works

The mortgage originator is the starting point in creating your mortgage. This covers retail banks, mortgage bankers, and brokers. Banks use their standard funding to close loans, while mortgage bankers often rely on a warehouse line of credit. Most banks and nearly all mortgage bankers sell new mortgages into the secondary market right away.

That said, depending on their scale and expertise, an originator might hold onto mortgages for a bit before selling the batch, or sell them one by one as they come in. There's risk when they keep a mortgage after locking in your interest rate. If it's not sold immediately, rate changes could affect its secondary market value and cut into their profit.

Here's a tip: Use a mortgage calculator to see how different rates affect your monthly payment.

Originators who bundle mortgages before selling often hedge against interest rate changes. Something called a best-efforts trade skips the hedging need, and smaller originators prefer this. Overall, they profit from origination fees and the difference in interest rates between what you pay and what the secondary market offers.

Primary vs. Secondary Mortgage Market

The primary mortgage market is where you meet the originator—be it a bank, credit union, or broker—to handle the transaction. At closing, the primary lender gives you the funds for your home purchase.

In the U.S., this market is quite fragmented. Large firms handle a big share, but thousands of smaller ones and individuals originate a lot too.

After origination, servicing rights often get sold in the secondary market, which deals with existing mortgages. Big players like Fannie Mae and Freddie Mac buy here, sometimes turning loans into mortgage-backed securities for sale.

Counting originations can be tricky because sold mortgages might get double-counted if the buyer claims them as originations.

Different Types of Mortgage Originators

Mortgage bankers and brokers are the main types. A banker works for a lender that funds the loan with its own money at closing—think retail banks and credit unions.

A broker, however, acts as your intermediary, handling your application, credit, income checks, and some underwriting, then passes the loan to a lender for funding.

What Types of Lenders Make Up the Primary Market?

The primary market includes banks, credit unions, mortgage banks, and online lenders. Brokers connect you to these lenders and operate at the primary level, though they don't lend themselves.

Is a Mortgage Broker the Same as a Mortgage Officer?

No, a mortgage officer is tied to one institution, while a broker works for you to scout the best rates from multiple lenders.

Do All Mortgage Originators Sell to the Secondary Market?

Not every one does, but most sell new loans because mortgages carry risk, and lenders aim for quick profits by offloading to bigger entities.

The Bottom Line

Mortgage originators team with underwriters and loan officers to verify and process your mortgage, but they rarely hold it long-term. If you're going with a broker, research their costs and services thoroughly before deciding. If the cons outweigh the pros, consider a mortgage banker instead.