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Understanding the Mortgage Production Line
As a loan officer, you must know that there are three primary parts of the mortgage industry. Each mortgage that a borrower applies for goes through a process of buying and selling in the mortgage “production line” before it gets to them. This process helps determine the mortgage’s mortgage and interest rates. That way, borrowers will be able to get a mortgage that they will be able to afford and the entities that invest in the mortgage won’t lose money.
The mortgage originator, also called the lender, determines the eligibility of borrowers who request a mortgage. Meaning, when a borrower submits their financial information to their mortgage lender, that information is used to determine the type of loan they are eligible for. Simply put, the lender creates the mortgage and makes money through the loans they sell to the secondary market. Lenders include:
- Credit unions
- Mortgage brokers
The second part of the mortgage industry is the aggregator. The aggregator is part of the secondary mortgage market and buys and manages newly originated mortgages from the primary market. Then, they put together similar mortgages to from what’s known as mortgage-backed securities (MBS). MBSs ensure that banks can lend money to a borrower without having to worry that they won’t be able to pay it. Aggregators are often mortgage originators themselves with ties to institutions like Freddie Mac and Fannie Mae.
- Government Sponsored Entity (GSE)
GSE’s include Freddie Mac and Fannie Mae. These entities invest in mortgages profiles, whether high- or low-risk, in order to see some financial returns on it through the rates borrowers pay and will often buy mortgages from the secondary market. Investors determine mortgage and interest rates offered to borrowers after the market clearing prices are paid for mortgage-backed securities by an investor.