This sector includes both finance companies and mortgage companies. Data for this sector are based on a Federal Reserve survey where finance companies are defined as companies in which 50 percent or more of assets are held in any of the following types of loan or lease assets: (1) liens on real estate, which are outstanding balances on loans or leases, for any purpose, secured by liens on real estate; and (2) loans and leases not secured by real estate: (a) business loans and leases, which are outstanding balances on loans and on leases for commercial and industrial purposes to sole proprietorships, partnerships, corporations, and other business enterprises; and (b) consumer loans and leases, which are outstanding balances on loans and on leases for household, family, and other personal expenditures. In the financial accounts, liens on real estate are mortgages, business loans and leases are classified as other loans and advances, and consumer loans are consumer credit.
Finance companies do not include U.S.-chartered depository institutions, cooperative banks, credit unions, investment banks, or industrial loan corporations. However, subsidiaries of a holding company or foreign banking organization may be considered finance companies. Captive finance companies, which are subsidiaries of nonfinancial companies that provide financing to customers of the parent company's products, are also included in this sector.
Finance companies own motor vehicles that are leased to consumers. The acquisition of the vehicles by finance companies is recorded as fixed investment, and the debt used to finance the purchase of the vehicles is reported as a liability. However, the leases themselves are neither financial assets of the lessors (finance companies) nor liabilities of lessees (households). Lease payments are treated as consumer expenditures by the lessee and as current income to the lessor. Consumer leases are shown as a memorandum item at the bottom of this table.
Beginning with the 2006:Q2 release of the financial accounts, the mortgage company sector was combined with the finance company sector. Mortgage companies primarily originate loans to households or businesses for the purchase of residential or commercial properties and then sell most of them in the secondary market. Prior to the financial crisis that began in 2007, many mortgage companies derived a significant portion of their business from subprime and alt-A mortgages. Since then, the number of mortgage companies has dropped dramatically.