Mortgage Companies: How They Work and What to Ask

What is a mortgage company?

A mortgage company is a business that makes home loans but does not take deposits. You will not open a checking account or a savings account there. Its entire focus is helping people buy homes or refinance the mortgages they already have.

These non-bank companies originate a large share of home loans in the United States. Many offer conventional loans along with government-backed options such as FHA, VA and USDA loans. Because mortgages are their only product, their loan officers, processors and underwriters tend to work with program guidelines every day.

How a mortgage company differs from a bank

The biggest difference is where the money comes from. A bank can lend out the deposits its customers keep there. A mortgage company usually closes loans using a warehouse line of credit, a short-term credit facility from a larger financial institution. After closing, the company sells the loan to an investor such as Fannie Mae, Freddie Mac or another institution, repays the credit line and uses that capacity to fund the next loan.

This model has a few practical effects for borrowers. The company that closes your loan may not hold it for long. The company that collects your payment may change over time. And the programs a company offers depend partly on the investors it sells to, which is why program menus vary from one company to the next.

Banks and mortgage companies follow the same federal disclosure, fair lending and servicing rules. The difference is in oversight: banks are chartered and examined by banking regulators, while mortgage companies are licensed and examined by each state where they do business, with additional federal oversight from the Consumer Financial Protection Bureau.

Retail, wholesale and correspondent channels

Mortgage companies reach borrowers in different ways.

Retail. You work directly with the company's own loan officers. Its staff handle your application, processing, underwriting and closing.

Wholesale. An independent mortgage broker works with you and submits your file to the company. The wholesale company underwrites and funds the loan, while the broker remains your main contact.

Correspondent. A smaller company closes the loan in its own name, then sells it shortly after to a larger investor that set the guidelines in advance.

Many companies operate in more than one channel. Asking which one applies to you clarifies who makes decisions on your file and whom you should call with questions.

Licensing and NMLS

Every mortgage company must be licensed in each state where it lends, and each loan officer must hold an individual license. Both carry a unique number issued by the Nationwide Multistate Licensing System, known as an NMLS ID.

You can look up any company or loan officer on NMLS Consumer Access, a free public website. The listing shows the states where the company is authorized, its business addresses and any public regulatory actions. A legitimate company will share its NMLS ID readily, and it usually appears on websites, email signatures and loan documents.

Servicing: who you pay after closing

Once your loan closes, a loan servicer takes over the day-to-day work. The servicer collects your monthly payment, manages your escrow account for property taxes and homeowners insurance, sends year-end tax forms and is your contact if you ever face payment trouble.

Some mortgage companies service the loans they make. Others sell the servicing rights, sometimes soon after closing. A servicing transfer does not change your loan's terms. Federal rules require written notice from both the old and new servicer, and you are protected from late fees for a short window if a payment goes to the old servicer by mistake.

Because fake transfer letters do circulate, confirm any change using contact information from a statement you already have before sending money to a new address.

Questions to ask a mortgage company

Before you apply, consider asking: What is your NMLS ID, and what is my loan officer's? Am I working with your retail or wholesale division? Do you underwrite in-house? Do you plan to keep servicing my loan or sell it? Who will be my main contact, and how will you keep me informed?

Programs vary by borrower, property and investor, and every loan is subject to credit approval. A licensed loan officer can review your situation and explain which options you may be eligible for.

Talk about mortgage companies

A licensed loan officer can walk through your options. Programs vary by borrower, property and investor.

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Prefer to talk first? Call (888) 912-6746. Applying is not a loan approval or commitment to lend; programs vary by borrower, property and investor. ClearPoint Mortgage Advisors, NMLS #173855. Properties in FL, NY, NJ, PA, CT and VA only.

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