Skip to main content
November 08, 2019 | home-buying

What is a Loan Originator? Your Guide to Third-Party Origination


Searching for the perfect home financing option can be tricky. Between all of the types, rates, and terms for loans, it may be hard to determine which is best for you and your purchase. Things can seem even more complicated when you have to stop and ask yourself, "Wait, what IS a loan originator again?" at least once a week.

Luckily we are here to clear the confusion and break down the role of the third-party originator— an essential player in the lending world. We’ll answer important questions like:

  • What is a third party originator?
  • What is the difference between working with a third party originator and a direct lender?
  • What are some examples of third party originators?
  • What role do third-party originators play in the wholesale lending marketplace?

What Is a Third-Party Originator?

A third-party loan originator is any other party besides the lender that works to originate a mortgage loan. A lender can choose to enlist the help of a third party originator to originate part or all of a mortgage loan for several reasons. Still, the most common is when the lender doesn’t have the resources present to handle the entire process alone. 

Let’s take a few steps back and look at the term “loan origination”— after all, it is a big chunk of the word third party loan originator. As a refresher, the definition of loan origination is the process of a borrower applying for a loan and the lender processing that application. It is a lengthy multi-step process that includes gathering up all of the necessary paperwork, preapproval, and underwriting. 

Some smaller credit unions and banks will have a third party originator handle aspects of origination like the application, loan marketing, and even closing. Generally speaking, any company or person aside from the lender that is involved in the origination of a mortgage is considered a third party loan originator. 

What Is the Difference Between Working with a Third Party Originator and Directly with a Lender?

There are some similarities if you originate your loan through a direct lender or an originator. You’ll still need to submit all of the same documentation and fill out the same type of paperwork— there’s no shortcut there. However, it’s important also to be aware of a few key differences.

A direct, or retail lender, is one that handles the lending process in-house, meaning they don’t rely on a third party to obtain a borrower for the loan. This type of lender may be what you think of when you think about getting a loan. You apply for the loan through the direct lender, and if you’re approved, they are the ones that’ll put the money in your hands. Third-party originators, on the other hand, are not the actual lender; they don’t cut the checks. They are merely working on behalf of the financial institution providing the funds.

What Are Some Examples of Third Party Originators?

There is no one form that a third party originator takes, but one of the most common that you’ll find in-home lending is mortgage brokers. However, as technology evolves, lenders are finding new ways to involve third parties through online loans and applications.

Mortgage Brokers

Mortgage brokers don’t work for financial institutions; instead, they serve as independent intermediaries between lenders and borrowers. Some of the duties that mortgage brokers perform include:

  • Gathering the Necessary Paperwork to Determine Qualifications. Mortgage brokers will assess the financial situation of the borrower to decide what types of loans they are qualified to receive.
  • Matching Borrowers to the Right Loans. After they have an idea of a borrower’s financial and credit standing, mortgage brokers will compare rates and terms from a variety of lenders to match the borrower to a loan that works best for them.
  • Aiding Borrowers (and Lenders) in the Application Process. Loan applications can be a pain with all paperwork and the needed documentation. Third-party originators can help borrowers by answering any questions that may arise and help lenders by collecting all of the necessary documents.

Credit Union Partners

Some third-party mortgage origination services partner with credit unions. These smaller, local institutions can outsource loans for processing, underwriting, and closing while still handling all of the face-to-face interaction. This frees up the credit union to focus on the customer, expand their business, and bring in funding. Consumers benefit by being able to continue doing business with an institution they already use and trust. In other words, if you haven't opened your eyes to the benefits of a credit union, now might be a great time to start!

Other Types of Third Party Originators

You’ll find different types of third-party originators out there, especially if you’re obtaining a mortgage through an online lender. Even with traditional lenders, you’ll find that third parties’ origination technology is used on the lender’s platform. 

What Role Do Third-Party Originators Play in the Wholesale Lending Marketplace?

Third-party originators play a significant role in the wholesale lending marketplace. Wholesale lenders are those that don’t deal directly with borrowers. Instead, they offer their loans solely through third parties. This means that you can’t just walk up to a wholesale lender’s office and expect to start the application process; all of it must be handled through a third party, whether it be a credit union, another bank, or a mortgage broker.

Third-party originators often have relationships with several wholesale lenders, so they can find borrowers loans with terms that work best for them. Once a borrower applies for a loan, the third party originator will see that process out. From there, most wholesale loans will be sold on the secondary market so that the lender has the capital to keep making loans.

Conclusion

The word may sound intimidating, but third party originators are nothing to fear! They aid wholesale lenders and numerous financial institutions like credit unions and banks in finding qualified borrowers and helping them through the process. They can help streamline processes and make everyone’s life a little easier.

Like any other aspect of finance, it always helps to do a little research before taking out a mortgage or choosing to work with a particular third party originator. By staying informed, you’ll be on your way to financing your home without any problems!

Want to Partner with Amplify?

Contact Amplify's Kendra Eakins and schedule your consultation today.

Contact Kendra