The primary mortgage market is made up of the businesses that lend borrowers money to pay for real estate — such as the bank you visited to find a loan. They are also called originators, because they initiate — or originate — the loan paperwork and the cash that's transferred to buyers at a real-estate closing. In addition to banks, the primary mortgage market includes savings associations, credit unions, and individuals — any person or business that provides cash for someone seeking a mortgage.

Originators all make loans as an investment, but the way they earn an income from the loans varies. The majority of loans made by originators are sold in order to free up funds so that the originator can make more loans. Less frequently, originators hold on to their loans, receiving regular payments from borrowers and earning an income from the ongoing interest that borrowers pay.

How do originators sell the loans? They assemble many similar loans into groups and sell them to members of the secondary mortgage market, typically receiving cash or mortgage-backed securities for them. The securities are a type of bond that the originator can then sell to other investors for cash. The end result is that the originating lender gets back the cash they gave the borrower, plus a fee for originating the loan.

The originator sometimes continues to service the sold loans, collecting payments from borrowers and handling their customer service issues. The originator charges the new loan owner a fee for the service, thus creating another way to make a profit for originating the loan.