A third-party mortgage originator is any third-party that works with a lender to originate a mortgage loan. Lenders may rely on the services of third-party mortgage originators for various reasons.
Breaking Down Third-Party Mortgage Originator
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.
Origination Service Providers
Online alternative 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, provides one example. This online lending company originates of 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 programing interface (API) plug 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.
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 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.