Third-Party Mortgage Originator

What Is a Third-Party Mortgage Originator?

A third-party mortgage originator is any third party that works with a lender to originate a mortgage loan. Third-party mortgage originators may include any person or company actively engaged in the marketing of mortgages, gathering information for mortgage applications, underwriting mortgages, or funding mortgage loans.

Lenders may rely on the services of third-party mortgage originators for various reasons. Some third-party mortgage originators facilitate online lending by offering lenders customized technology platforms and applications. Using the services of a third-party mortgage originator can also reduce underwriting costs.

How a Third-Party Mortgage Originator Works

Third-party mortgage originators can come from a variety of channels. Innovations and new technologies are constantly being introduced in the mortgage market to provide mortgage origination options and alternatives for lenders.

Many lenders outsource their mortgage underwriting and origination to a third-party service provider. In some situations, intermediaries such as third-party mortgage brokers may also take part in partially supporting the underwriting process. Generally, any person or company involved with any aspect of the mortgage origination process may also be considered a third-party mortgage originator.

Third-party mortgage originations frequently come under scrutiny because of their lack of ongoing and lasting responsibility for the mortgage. This has led to multiple criticisms of third-party originators, including jurisdictional complaints and the claim that there is a greater incentive to overprice loans.

Origination Service Providers

Online alternative mortgage lenders have integrated third-party mortgage originators into their online lending process to facilitate loan originations for their customers. And many alternative and traditional lenders also work with third-party mortgage originators to reduce the costs involved with mortgage underwriting.

These companies will typically integrate a third-party lender’s origination technology platform as an application programming interface (API) plug-in into their banking platform to facilitate the use of third-party technology. In some situations, bankers may also be required to manually enter loan information into a third-party origination system to initiate the loan underwriting process through the services of a third-party mortgage originator.

In most cases the third-party originator does not hold the originated loan, selling it to the lender or investors within a few days of origination. In the case of online lenders, third-party originators provide the capital to fund a loan and use their underwriting technology to approve loans for the platform. The third-party originator then holds the loan until it is bought in pieces by the investors in online lending platforms. Thus, they facilitate the peer-to-peer investing model for online lenders.

Special Considerations

In the lending industry, third-party mortgage originators can be broad in scope and may be loosely defined as any person or company involved in the process of marketing mortgages, gathering borrower information for a mortgage application, underwriting, closing, or funding a mortgage loan. This can give affiliates such as mortgage brokers and other types of intermediaries the title of third-party mortgage originator.

The utilization of government-sponsored entities for selling loans in the secondary mortgage market also widens the arena for eligible third-party mortgage originators. For example, Fannie Mae defines a third-party mortgage originator as any entity involved in incomplete or partial origination, processing, underwriting, packaging, funding, or closing of a mortgage loan that is then sold to Fannie Mae in the secondary market.