What Is an Aggregator?
An aggregator is an entity that purchases mortgages from financial institutions and afterward securitizes them into mortgage-backed securities (MBSs). Aggregators can be the responsible banks of the mortgages or auxiliaries inside the financial institutions themselves. They can likewise be brokers, dealers, [correspondents](/reporter bank), or one more type of financial corporation. Aggregators earn a profit by purchasing individual mortgages at lower prices and afterward selling the pooled MBS at a higher price.
Figuring out an Aggregator
Aggregators are basically service suppliers who dispose of a portion of the work issuers need to go through in making a mortgage-backed security. Contingent upon what the end customer is searching for, aggregators can search out and purchase a defined type of mortgage from a different set of lenders and originators. By growing the inquiry across an assortment of mortgage originators, including regional banks and specialty mortgage companies, it is feasible to make tailored mortgage-backed securities that can only with significant effort be obtained from a single mortgage originator.
Secondary Mortgage Market
Aggregators are better perceived as a phase of the securitization cycle as opposed to a distinct entity in the secondary mortgage market. At the point when an originator, similar to a bank, issues a mortgage, they need to get it under the table to free up capital with the goal that they can issue more loans. Selling a single mortgage straightforwardly to an investor is interesting on the grounds that a single mortgage faces a great deal of hard to-measure risks in light of the individual buying a property. All things considered, the aggregator purchases up an assortment of loans where overall performance is simpler to foresee and afterward offers that pool to investors in tranches. So there is a pooling/total phase that happens before the MBS can be cut up and sold.
At the point when Aggregators Are Also Originators
Mortgage originators frequently become aggregators, as securitizing a pool of mortgages should be visible as a natural extension of their business. At the point when the originator acts as an aggregator, they for the most part make a special purpose vehicle (SPV) as a walled-off subsidiary for pooling and selling loans. This eliminates some liability and frees up the originator's aggregator arm to purchase loans from different institutions as well as from the parent entity, as is once in a while important for the creation of a tailored MBS.
In theory, the originator-possessed aggregators operate equivalent to third-party aggregators even however they are dealing with a majority of the mortgages from a single customer, which is likewise the owner. In practice, there could be circumstances that wouldn't exist with a third party. For instance, the aggregator could be quietly urged to not look for as steep a discount on secondary market mortgages to assist the parent with companying's balance sheet, shifting any overall loss to the aggregator. Of course, the MBS market leading up to the mortgage meltdown had more huge issues than the possibility of an aggregator and originator plotting.
- An aggregator is any entity that purchases mortgages from financial institutions and afterward securitizes them into mortgage-backed securities (MBSs) available to be purchased.
- Giving banks, auxiliaries inside the financial institution, brokers, dealers, and reporters can all be aggregators.
- At the point when mortgage originators become aggregators in the securitization cycle, they make special purpose vehicles (SPVs) to work with the transaction.
- Aggregators function as service suppliers that eliminate the work for issuers in making a mortgage-backed security.