# Mortgage Originator: Definition, What It Does, Types

![Older couple speaking with a mortgage originator](https://www.investopedia.com/thmb/FYLTIig7BEmamvq1GUqs2mG0njg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-491617556-9dde7feeba8448fc86da8a0a8d90ad10.jpg)

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## What Is a Mortgage Originator?

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

### Key Takeaways

*   A mortgage originator is an institution or individual that works with an [underwriter](https://www.investopedia.com/terms/u/underwriter.asp) to complete a home loan transaction for a borrower.
*   Mortgage originators consist of retail banks, mortgage bankers, and [mortgage brokers](https://www.investopedia.com/terms/m/mortgagebroker.asp).
*   Since they create loans, mortgage originators are part of the primary mortgage market, but they often quickly sell their loans into the secondary mortgage market.
*   Mortgage originators make money through the fees that are charged to originate a mortgage and the difference between the interest rate given to a borrower and the premium a secondary market will pay for that interest rate.

## How a Mortgage Originator Works

The mortgage originator is the first company involved in creating a mortgage. Mortgage originators consist of retail banks, mortgage bankers, and [mortgage brokers](https://www.investopedia.com/articles/financialcareers/10/real-estate-agent-mortgage-broker.asp). While banks use their traditional sources of funding to close loans, mortgage bankers typically use what is known as a [warehouse](https://www.investopedia.com/terms/w/warehouse_lending.asp) line of credit to fund loans. Most banks, and nearly all mortgage bankers, quickly sell newly originated mortgages into the secondary mortgage market.

However, depending on its size and sophistication, a mortgage originator might aggregate mortgages for a certain period of time before selling the whole package; it might also sell individual loans as they originate. There is risk involved for an originator when it holds onto a mortgage after an [interest rate](https://www.investopedia.com/terms/i/interestrate.asp) has been quoted and locked in by a borrower. If the mortgage is not simultaneously sold into the secondary market when the borrower locks the interest rate, rates could change, which alters the value of the mortgage in the secondary market and, ultimately, the [profit](https://www.investopedia.com/terms/p/profit.asp) the originator makes on the mortgage.

> **Tip**
>
> A mortgage calculator can show you the impact of different rates on a monthly mortgage payment.

Originators that aggregate mortgages before selling them often hedge their [mortgage pipelines](https://www.investopedia.com/terms/m/mortgage_pipeline.asp) against interest rate shifts. A transaction called a [best-efforts](https://www.investopedia.com/terms/b/bestefforts.asp) trade eliminates the need for the originator to hedge a mortgage. Smaller originators tend to use best-efforts trades.

In general, mortgage originators make money through the fees charged to originate a mortgage and the difference between the interest rate given to a borrower and the [premium](https://www.investopedia.com/terms/p/premium.asp) a secondary market will pay for that interest rate.

## Primary vs. Secondary Mortgage Market

The [primary mortgage market](https://www.investopedia.com/terms/p/primary_mortgage_market.asp) 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 their home purchase.

The primary mortgage market is highly fragmented in the United States. While several large firms originate a large percentage of mortgages, [thousands of smaller firms and individuals](https://www.investopedia.com/terms/t/thirdparty_mortgage_originator.asp) also account for a large percentage of total mortgage originations.

Once originated, the [servicing rights to mortgages frequently get sold](https://www.investopedia.com/terms/m/mortgage-putback.asp) from one institution to another. This activity takes place in the secondary mortgage market, which is termed as such because buying and selling in this marketplace can only occur after a mortgage is already in force. [Government-sponsored enterprises (GSEs)](https://www.investopedia.com/terms/g/gse.asp), such as Fannie Mae and Freddie Mac, represent some of the largest buyers on the secondary market. Secondary buyers sometimes package pools of loans into [mortgage-backed securities (MBS)](https://www.investopedia.com/terms/m/mbs.asp) and sell them.

Tallying up the percentage of originations that belong to which mortgage originator depends on how an [origination](https://www.investopedia.com/terms/o/origination.asp) is counted. Since a large percentage of newly originated mortgages are immediately sold into the [secondary mortgage market](https://www.investopedia.com/terms/s/secondarymarket.asp), they might be counted by the institution that purchases the mortgage in the secondary market as an origination, thus double-counting the origination.

## Different Types of Mortgage Originators

Mortgage bankers and brokers represent two of the most common mortgage originators. While the titles sound similar, important distinctions exist between the two. A [mortgage banker](https://www.investopedia.com/terms/m/mortgagebanker.asp) works for a lending institution that 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.

## What Types of Lenders Make Up the Primary Market?

Banks, credit unions, mortgage banks, and online lenders make up the primary mortgage market. Mortgage brokers may be the connecting points for borrowers and lenders and interact at the primary level, although they aren't technically the lenders.

## Is a Mortgage Broker the Same as a Mortgage Officer?

A mortgage officer works for a single institution, whereas a mortgage broker typically works directly with a borrower to find the best rates from a pool of lenders. A mortgage broker works on your behalf rather than on the lenders'.

## Do All Mortgage Originators Sell to the Secondary Market?

Not all mortgage originators sell their newly originated loans, but most do. Mortgages represent a good amount of risk, and most lenders want to make a quick profit from selling the mortgage to a larger entity.

## The Bottom Line

Mortgage originators work with underwriters and loan officers to confirm and process your mortgage, but they will seldom keep your loan for the long term. If you decide to have a mortgage broker originate your loan, take the time to research and compare different broker costs, services, etc. before you make a final decision. If you find that the downsides of working with a mortgage broker outweigh the benefits, then a mortgage banker may be a better option.  

> **Article Sources**
>
> 1.  Mortgage Bankers Association. "[Warehouse Lending Fact Sheet](https://www.mba.org/docs/default-source/policy/white-papers/res_pol_fs_22841_mba_warehouse_lending_brochure-pages.pdf?sfvrsn=10bd339c_1)," Page 2.
>     
> 2.  My Home by Freddie Mac. "[How the Secondary Mortgage Market Works](https://myhome.freddiemac.com/blog/homeownership/20160125-secondary-mortgage)."
>     
> 3.  National Association of Realtors. "[What Is the Secondary Mortgage Market?](https://www.nar.realtor/fannie-mae-freddie-mac-gses/secondary-mortgage-market)"