Reviewed by Jan 29, 2021| Updated on
An aggregator is an organisation that buys mortgages from financial institutions and then securitises them into mortgage-backed securities (MBS). Aggregators may be the issuing banks or branches of the financial institutions themselves or traders, dealers, correspondents, or some other form of a financial company. Aggregators make income by purchasing down-price individual mortgages and then selling the combined MBS at a higher premium.
Aggregators are basically service providers in providing mortgage-backed protections that remove some of the efforts that issuers need to go through. Depending on what the end-customer is looking for, aggregators will search and buy a given mortgage form from a variety of lenders and originators.
Widening the search through a range of mortgage originators, including regional banks and specialist mortgage companies, tailor-made mortgage-backed securities can be produced that could not be easily obtained from a single mortgage originator.
In the secondary mortgage market, aggregators are best understood as a securitisation cycle component than a distinct entity. When an originator issues a mortgage, like a bank, they decide to push it off the books and free up capital and repay it again. Selling one mortgage directly to a borrower is tricky as a single mortgage poses many risks that are difficult to calculate depending on the person purchasing a home.
Alternatively, the aggregator buys up a loan portfolio where average output is easier to estimate and then sells the pool in tranches to investors. Thus, there is a process of pooling/aggregation, which takes place before the MBS can be sliced and sold.