Understanding a Mortgage Originator

The mortgage originator is the first company involved in the creation of a mortgage. Mortgage originators consist of retail banks, mortgage bankers, and mortgage brokers. While banks use their traditional sources of funding to close loans, mortgage bankers typically use what is known as a warehouse 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 are originated. There is risk involved for an originator when it holds onto a mortgage after an interest rate has been quoted and locked in by a borrower. If the mortgage is not simultaneously sold into the secondary market at the time the borrower locks the interest rate, interest rates could change, which changes the value of the mortgage in the secondary market and, ultimately, the profit the originator makes on the mortgage. 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 against interest rate shifts. There is a special type of transaction called a best-efforts trade, designed for the sale of a single mortgage, which 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 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.