Mortgage Originator

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What is Mortgage Originator

A mortgage originator refers to an entity that guides and assists the customer in obtaining a mortgage. Purchasing a mortgage is not a single-step process but a multistep process, and completing the steps results in a mortgage loan.

The steps involved are usually complex and vary with lenders. Examples of the steps are furnishing loan application forms, documentation processing, and underwriting. Any individual seeking a loan has to go through these complex procedures, often requiring help from professionals, and the loan originator collaborates to complete the steps involved.

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  • A mortgage originator refers to an entity that guides and assists the customer in obtaining a mortgage.
  • Originators must have a license prescribed by the authorized governing entity. The common types are mortgage bankers and mortgage brokers.
  • An example is a mortgage broker connecting a mortgage lender and borrower in exchange for a commission.
  • Originators face interest rate risk, default risk, prepayment risk, etc. However, expert analysis of factors like borrower background, cash flow, and requirements can reduce the risk elements.

Mortgage Originator Explained

A mortgage originator entity can be an organization or an individual who aids loan seekers in understanding the various matters and regulations one must consider and follow for taking a mortgage. For example, their role is to serve as a guide in the finance world to provide the borrower with insight into which loan program will suit them better and its disadvantages and advantages.

Generally, they are the primary lenders participating in the primary mortgage market. Also, their services aren't free of cost; borrowers have to pay a mortgage origination fee for the loan application processing. The charges are generally a percentage of the total mortgage amount, like 0.5% or 1% of the mortgage amount. It adds to the profit a mortgage lender makes on loan.

Mortgage loan originators (M.L.O.s) must be licensed within their states, and an M.L.O. can have multiple licenses belonging to different states. For example, The S.A.F.E. Mortgage Licensing Act of 2008 requires loan originators in the United States to be licensed. All licensed Mortgage Loan Originators must pass a test issued by N.M.L.S. under the SAFE Mortgage Licensing Act of 2008. To satisfy the SAFE test criteria of any single state jurisdiction, each loan originator must take and pass the SAFE MLO Test. To obtain a license, an individual must complete 20 hours of pre-licensing education and pass the test with a minimum of 75% under the SAFE Mortgage Licensing Act.

Examples

Morris wants to buy a new home for his family. He has some savings but not the full amount to get a new house. So, decides to purchase a mortgage to finance his new house. Since he lacks financial knowledge and does not know which or how to approach banks, he decided to connect with a mortgage broker and is ready to pay a commission for all the help and connection establishment that the broker will do.

The mortgage broker worked with Morris in connecting with lenders and found the greatest solution based on his net worth, salary, and interest-rate requirements. The mortgage broker collects documentation and then sends it to the chosen bank for processing and underwriting, ensuring that his loan is sanctioned promptly. In closing, the broker receives a commission from Morris.

ABC is a licensed mortgage bank engaged in the business of granting mortgage loans to its customers. For the mortgage banks, loans are assets in their books. Hence, the ABC bank is called an originator when they make a loan secured on the mortgaged property of the borrower because they are originating an asset.

Types

The common types are mortgage bankers and mortgage brokers. Let's look into a brief description of both types.

Mortgage Originator Types

Mortgage broker

  • Mortgage brokers are mediators forming a connection between the mortgage lenders and borrowers.
  • Mortgage brokers are self-employed and do not use their money for processing or lending.
  • They take a specific cut, a percentage of the total loan amount, as a commission from the borrower, lender, or both for all the services rendered.
  • These licensed professionals help borrowers find the right mortgage plan comprising the right amount, tenure, interest rate, payment methods, and easement.

Mortgage banker

  • Mortgage bankers are state-licensed organizations that offer mortgages to customers.
  • Customers can approach the banker directly to purchase a mortgage. Hence, there will be no intermediary.
  • They use their fund for lending.
  • They perform mortgage securitization.
  • They receive mortgage origination fees and profit by selling the loan product in the secondary mortgage market.

Risks

The mortgage originator faces risk due to various factors. Primarily, the originator should apply the expertise in analyzing the customers' background and requirements and select the right product for them. Wrong analysis can lead to risks like default risk. Other risks they face are the interest rate risk faced while participating in the selling of Mortgage-Backed Security (MBS) in the secondary market and the prepayment risk.

Frequently Asked Questions (FAQs)

What Does a Mortgage Loan Originator Do?

An originator guides and assists the customer in completing the process of purchasing a mortgage. They work parallel with the borrower throughout the process, ensuring the accurate and prompt completion of application processing, underwriting functions, etc. For the lending entity, the originator is creating an asset. The originator can be the lending entity or an independent broker.

What is Mortgage Loan Originator's salary in the United States?

According to the Indeed.com report updated on April 29, 2022, the average salary for a mortgage loan originator is $282,582 per year in the United States and $25,000 commission per year.

What is the difference between a mortgage originator and a mortgage broker?

A mortgage originator is a bank or financial institution that is the real lender for the loan and helps the loan seeker through the application to its approval. On the contrary, a mortgage broker is a middleman or an agent who works on behalf of the debt seeker to find the most reasonable mortgage rates and introduce them to the best loan programs available by comparing multiple lenders.