Mortgage Company: What It Means, How It Works

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What Is a Mortgage Company?

A mortgage company is a specialized financial firm that originates and funds residential or commercial property mortgages. A mortgage company often is 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.

Key Takeaways

• A mortgage company is a lender specializing in originating home loans.
• Some mortgage lenders offer creative and out-of-the-box loan offerings, such as no origination fees or offering loans to those with less than stellar credit.
• The factors that differentiate one mortgage company from another include relationships with funding banks, products offered, and internal underwriting standards.
• It is possible today to complete a mortgage application entirely online, although some customers prefer face-to-face meetings with a loan offer at a bank.

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.

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.

Why Work With a Mortgage Company?

Mortgage companies might offer incentives that buyers might not find at banks. For example, a mortgage company might be more willing to deal with borrowers with less-than-perfect credit, or they may offer loans with no origination fees. Rocket Mortgage, for example, states that it may approve mortgages for borrowers with credit scores as low as 620.

What Do Mortgage Companies Do?

Mortgage companies are financial institutions that specialize mortgages. While banks and credit unions may have mortgage departments that are part of those larger institutions, mortgage companies focus solely on mortgages.

How Are Mortgage Companies Different From Mortgage Brokers?

Mortgage companies actually fund mortgages even if they don't service those mortgages for their duration. Mortgage brokers, on the other hand, serve as a go-between for borrowers and lenders, helping connect borrowers to the best lenders for their needs.

The Bottom Line

When shopping for a mortgage, companies that specialize in such lending are worth considering. They may offer rates competitive with local banks or credit unions, and they also may offer incentives such as reduced fees. Some companies might also work with borrowers with lower credit scores. Because many mortgage companies operate online, borrowers are not tied only to lenders with nearby physical locations.

1. Guardian Mortgage. "Why Are Some Loans Not Serviced by My Mortgage Lender?"
2. U.S. Department of Justice. “The Equal Credit Opportunity Act.”
3. Rocket. "What Credit Score Do You Need to Buy a House?"

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A tandem plan was a type of mortgage purchase program subsidized by the Government National Mortgage Association (Ginnie Mae).

A principal reduction is a decrease in the principal owed on a loan, typically a mortgage, as an alternative to foreclosure on the home.

A judicial foreclosure is a legal proceeding that allows lenders to obtain a power of sale through the courts when a borrower defaults on their mortgage.

A reverse mortgage initial principal limit is the amount of money a reverse mortgage borrower can receive from the loan.

Adjustment frequency refers to the rate at which an adjustable-rate mortgage rate (ARM) is adjusted once the initial period has expired.

A defeasance clause is a mortgage provision indicating that the borrower will receive title to the property once all mortgage payment terms are met.

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