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 of 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.
- A third-party mortgage originator is a person or company that works with a lender to originate a mortgage loan.
- The mortgage origination process involves many steps, such as gathering information from the borrower for the loan application and assisting in the underwriting, closing, and funding of the loan.
- Some lenders outsource their origination process to third-party services in order to save money on underwriting costs, provide a more efficient lending process to their customers, and to take advantage of online lending platforms.
- Most third-party mortgage originators do not hold onto and service the mortgages they originate; rather, they sell the mortgages to the lender or investors shortly after originating the loan.
How a Third-Party Mortgage Originator Works
Third-party mortgage originators can come from a variety of channels. In the mortgage market, innovations and new technologies are constantly being introduced 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 greater incentive to overprice loans.
Loan origination fees are the fees borrowers pay to the lender for processing a new loan application. In the United States, origination fees are a percentage of the total loan amount and typically range between 0.5% and 1%.
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. Publicly traded online lender, Lending Club Corp (LC), provides one example. This online lending company originates its loans through WebBank, a leading third-party mortgage originator.
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.
Many new mortgages are sold by the issuing lender in the secondary mortgage market, which is a marketplace where home loans and servicing rights are bought and sold between lenders and investors.
Origination Service Affiliates
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.