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Third Party Mortgage Originators

DEFINITION

A third-party mortgage originator is any third party aside from the client and a lender that helps a client to originate a loan for a mortgage.

EXPLANATION

When a person applies for a mortgage loan, it is necessary to submit documents like tax returns, paycheck stubs, bank balances, credit card reports, etc. to establish credit-worthiness. This process is called origination. A third-party originator will go through this process and sort out a mortgage that a client is eligible for and then passes this information along to the mortgage market as a package. So basically, a lender allows a third party to figure out the best mortgage for a client based on their specific information and needs. A controversial element of this process is that third party originators have no responsibility as to whether these mortgages will default. The originator’s job is simply to put together a mortgage package, while the lender assumes responsibility for the loan. So while they help a client find an appropriate loan, they might end up leaving the lender in an undesirable spot. On the other side of that coin, lenders also can make use of third party originators.

A third-party mortgage originator can be brought into a transaction through a variety of sources. Sometimes lenders will outsource their loan origination to another provider. Third part originators help with the underwriting, or the process of deciding what level of risk is involved with offering a borrower whether a client is creditworthy to accept the loan.

Both traditional and alternative lenders may work with third party originators to lower the expense of underwriting a mortgage application. Because a lot of lenders now work online, lenders can incorporate their technologies into their own online banking platform. Most of the time the third-party originator will sell the originated loan back to the investors of the lenders within a few days of receiving it. The way this works is that funding is provided by the third-party originator to finance the loan and will use their technology to approve a loan. Then the loan is held for a few days by the third-party originator and purchased by a lender in parts.

Third Party Lenders

Third party lenders come in a scope of varieties and can be defined as any company or person that is involved in gathering borrower information for a loan application, marketing loans, underwriting, funding or closing a mortgage loan. This can include a mortgage correspondent or broker. If the lender chooses to enter into an ongoing third-party-originator, maybe due to the good quality of their process, then the loans are no longer considered to be third-party-originator mortgages. It’s important that the lender makes sure to choose reputable third parties like mortgage insurers to work with in case of default. It is lender’s responsibility to ensure that there are written procedures and effective policies so that the third-party originator is truly able of producing loans of quality. It’s important that they have things in place like evaluation standards for a third-party originator’s performance, a process of resolving discrepancies, licenses, procedures for verifying compliance with qualifications, licensing, and law in regards to the loans. They may also choose to conduct quarterly performance reviews.

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