What Is a Third-Party Mortgage Originator?

Third-party mortgage originators are companies and other entities that contribute to the origination of mortgage loans in some capacity. This might be the creation of an online mortgage origination process for a lender, or automating loan application evaluation. Using third-party mortgage originators often lowers costs for lenders. Traditional lenders such as banks benefit from growth in the availability and service variety of third-party mortgage originators.

Learn more about how third-party mortgage origination works and how it affects the industry and your mortgage.

Definition and Examples of Third-Party Mortgage Originators

Third-party mortgage originators are entities that work collaboratively with traditional banks and new types of non-bank mortgage lenders to streamline the mortgage lending process. They often use technological solutions to, for example, make it possible to apply for a loan online. Some third-party originators make it easier to market mortgage loans to customers, or they may originate and fund the mortgage loans themselves without the involvement of a bank.

Essentially, because mortgage origination involves many moving parts, not all customer-facing lenders want to offer every step of the process themselves. It may not be cost effective, for instance, to do every part of origination under the same company’s umbrella.

This flexibility can end up saving mortgage lenders money by making them more nimble in the competitive mortgage loan marketplace. While these third parties must comply with all the same regulations as a typical lender, they have the opportunity to streamline through technological solutions or other innovative approaches to mortgage lending, which can ultimately make loans cheaper or easier to acquire.

How Third-Party Mortgage Originators Work

Understanding a third-party mortgage originator’s role requires an understanding of the moving parts of originating a mortgage. For example, some kind of marketing often occurs at the beginning of a mortgage process to find borrowers who are in need of mortgages. These customers must be given information about the kinds of loans available based on their goals and needs. There also are processing needs during which an application must be submitted, reviewed, and evaluated based on specific loan criteria.

All of these tasks don’t have to happen within a single lending company. Firms can specialize and focus on a part of the origination process. An example might be a bank that chooses not to advertise heavily and works with a mortgage broker instead. In exchange for a fee or commission, the broker connects potential borrowers with the lender. The lender saves money on marketing and the broker becomes specialized in the work of finding interested customers who could benefit from a loan.

The technology element comes in when third-party mortgage originators develop software that can process the many kinds of data involved in a loan application faster or better than traditional approaches. Some fintechs offer software packages that process loan applications quickly and accurately. They then charge banks or non-bank lenders to use the software.

What Does This Mean for Your Loan Origination Process?

The existence of third-party mortgage originators means there are a variety of ways to acquire a mortgage loan. You usually don’t have to visit a physical bank, since online mortgage applications are becoming more common, usually created using proprietary fintech software. Even more digital solutions are expected to crop up for other aspects of mortgage lending over time.

Loan origination can become streamlined and inexpensive even for small local banks because of third-party mortgage originators, too. Whether you opt to go through a mortgage lender online or a traditional bank, many of the places you’d consider applying for a loan will use a third party for some part of the process. In many cases, this enables lenders, even small ones, to offer more competitive interest rates or offer a wider variety of financial products profitably, both of which give you more and better options.