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.

Key Takeaways

  • A third-party mortgage originator works with a mortgage lender to originate a home loan.
  • The mortgage origination process involves many steps, including underwriting.
  • Some lenders use third-party services in order to save money on underwriting costs.
  • Most third-party mortgage originators do not hold onto and service the mortgages.
  • They usually 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. 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.

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.

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.

What Is a Third-Party on a Home Loan?

A third-party on a home loan, or a mortgage originator, is a company or, in some instances, an individual who works with a lender to originate a home loan.

What Does a Third-Party Mortgage Originator Do?

A third-party mortgage originator works in partnership with a mortgage lender to originate a home loan, which involves assisting in the underwriting process, funding the loan, and getting necessary information from the buyer.

What Are Loan Origination Fees?

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%.

Can a Third-Party Originator Sell My Loan?

Often the third-party originator sells the mortgage to the lender or investors within a few days of origination.

Article Sources
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  1. Fannie Mae. "Selling Guide."

  2. Rocket Mortgage. "Mortgage Origination Fee: The Inside Scoop."