Mortgage Company

What Is a Mortgage Company?

A mortgage company is a specialized financial 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 20008-09. 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.

Understanding Mortgage Companies

A mortgage company is a financial firm that underwrites and issues (originates) its own mortgages to homebuyers, using their own capital to issue the loans. Also known as a direct lender, a mortgage company typically only specializes in mortgage products and does not offer other banking services such as checking, investments, or loans for other purposes. Moreover, they will usually offer their own products and will not offer loans or products from other companies.

Many mortgage companies today operate online or have limited branch locations, which may reduce face-to-face interaction, but could, at the same time, lower the costs of doing business.

While a mortgage company will originate loans, they may not service your loan, or keep it on their balance sheet for long. Indeed, many times, a mortgage lender will sell the loan (individually or bundled together with others) to a third-party mortgage servicing institution such as an investment bank, hedge fund, or agency like Fannie Mae or Freddie Mac. While this typically has no bearing on an individual borrower, this practice has been criticized for creating an abundance of subprime debts that ultimately led to the 2008-09 financial crisis.

Mortgage companies often offer a portfolio of mortgage products to potential homebuyers including fixed-rate, adjustable-rate (ARM), FHA, VA, military, jumbos, refinance, and home equity lines of credit (HELOCs).

Special Considerations

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 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.