Legal Definitions - mortgage company

A mortgage company is a financial institution that specializes in originating and funding loans for individuals or businesses to purchase real estate. These companies process loan applications, assess borrower eligibility, and provide the initial funds for the property acquisition. A defining characteristic of a mortgage company is that, rather than holding these loans on their books for the entire repayment period, they typically sell or assign them to other investors, such as larger banks, investment firms, or government-sponsored enterprises.

• Example 1: First-Time Homebuyer
  A young couple, the Millers, are looking to buy their first home. They apply for a loan through "BrightPath Mortgages." BrightPath Mortgages reviews their financial information, approves their application, and provides the funds for the home purchase, handling all the necessary paperwork. A few months after the Millers move in, BrightPath Mortgages sells their mortgage, along with hundreds of others, to "Global Investment Bank."

  This illustrates the term because BrightPath Mortgages acted as the mortgage company by originating the loan for the Millers. Their subsequent sale of that loan to Global Investment Bank demonstrates the core function of selling or assigning the loan to investors, rather than holding it themselves.

• Example 2: Refinancing an Existing Mortgage
  Sarah owns a house and wants to take advantage of lower interest rates to reduce her monthly payments by refinancing her existing mortgage. She contacts "SecureHome Loans" to apply for a new loan. SecureHome Loans processes her application, assesses her property's current value, and provides her with a new mortgage that replaces her old one. Shortly after, SecureHome Loans bundles Sarah's new mortgage with many others and sells the entire package to a large pension fund.

  Here, SecureHome Loans functions as a mortgage company by originating Sarah's new refinancing loan. By selling this loan to a pension fund, they exemplify the practice of assigning loans to investors, which allows them to free up capital to make new loans.

• Example 3: Commercial Property Acquisition
  A small manufacturing business, "InnovateTech," needs to purchase a larger facility to expand its operations. They secure a commercial mortgage from "Enterprise Funding Solutions." Enterprise Funding Solutions underwrites the loan for InnovateTech's new facility, ensuring the business meets all lending criteria. Once the loan is finalized and the property purchased, Enterprise Funding Solutions sells the loan to a real estate investment trust (REIT).

  Enterprise Funding Solutions acts as a mortgage company by originating the commercial loan for InnovateTech. Their subsequent sale of this loan to a REIT demonstrates their business model of making loans and then selling them to investors, which in this case is a specialized real estate investment vehicle.