Mortgage originator or broker?

[Mike]

If you do a search for Mortgage AND Originator on this forum you won't get many results. Certainly no explanation what the term means. The term Mortgage Broker is the common term used but apparently there is a difference which I stumbled across:

What is mortgage origination?

A mortgage originator is an intermediary between borrowers and lenders.
If a person wants a loan, they can go to a mortgage originator and give their requirements.
The mortgage originator then matches the client to a suitable loan.
The mortgage originator facilitates the loan approval process.
Once the loan is settled, the mortgage originator steps out of the picture
The mortgage originator receives a commission from the lender

Is it the same as a broker?

Very similar, but the major difference is that a broker charges their clients a brokerage fee. Originators do not charge brokerage fees.
Many people use the words originator and broker interchangeably. It is important to recognise this key difference

Why go to a mortgage originator?

Free service
Better advice –clients are more likely to be matched with a loan most suitable to their needs
No obligations or pressure to sign anything
Independence – A mortgage originator is not aligned to one bank but 15-20 lenders (banks and non-banks)
Faster pre-approvals - generally take less time through a mortgage originator as they receive priority service from lenders
Saves time and hassle – going to a mortgage originator is like going to 20 different lenders in the time it normally takes to see one.

[Source: http://www.visionhomeloans.com.au/faq.htm ]

Regards, Mike

PS For the Trivia Buffs: Which one is Rolf - a Mortgage Broker or a Mortgage Originator? Well, according to Rolf's website at http://www.asapfinancial.com.au/store/default.inetstore he describes himself as an Independent Mortgage Broker. Isn't that a Mortgage Originator? One gets the distinct impression that Mortgage Originator isn't a popular term. Should we use the "O" word, Rolf?

More Trivia: Major banks such as ANZ, Westpac and St George now receive over 25 per cent of all their home loans from mortgage broking groups. Some industry analysts are predicting that in three years' time, more than one in every two loans will be introduced by mortgage brokers, as is occurring in the United States market.

 

[Sim]

Actually, I disagree with the definitions given on that site Mike.

I was always led to believe that a mortgage originator was actually a front end to a lender (whether that be a traditional lender such as a bank or some other source of funds from the securitisation industry).

The mortgage originator negotiates with the client (borrower), sets up the loan, and then administers the loan on behalf of the fund source. That is, they accept loan payments, track the status of the loan and act as an intermediary for the lender.

This is as opposed to the broker who is simply the person who introduces the borrower to the lender, and then the ongoing relationship is directly between the borrower and lender.

Where a lender has a client facing infrastructure where they can deal with accepting payments and provide customer service, you usually don't need mortgage originators (although some may choose to use them) - mortgage brokers will suffice.

However, where someone wants to sell first mortgage securities (ie. they have a source of funds but no infrastructure to manage traditional loans) - then they can use an intermediary such as a mortgage originator to not only liase with borrowers, but to also administer the loans themselves.

Mortgage brokers usually do NOT charge their clients - they receive a trailing commission from the lender. Mortgage originators DO charge their clients - they charge the fees and add an interest rate margin to the fund source and make their money that way.

So I think that these people from Vision Homeloans are nothing more than mortgage brokers trying to differentiate themselves in a crowded marketplace by calling themselves something different. I think they are being misleading.

That being said, I have heard the terms used interchangeably.

Some links to support my argument:

http://www.pacfin.com.au/what_originator.htm

"The originator, originates the loan, i.e. negotiates with the borrower, agrees the terms and establishes the loan. Furthermore once the loan has been settled (money advanced) the originator administers the loan, e.g. collects the mortgage payments each month, follows up any overdue amounts, verifies insurances and other loan conditions as well as supervising repayment and undertaking any enforcement requirements. "

- - -

http://www.resimac.com.au/aboutus.htm

"Mortgage Originators elect to fund their business through a private mortgage securitisation program rather than a Bank or Building Society for a number of reasons, namely:-
The loan approval process is more timely and efficient
The remuneration structure is generally more flexible and more attractive, and
The Mortgage Originator retains ownership of the client. Private mortgage programs allow the Mortgage Originator to offer a loan under his own brand name rather than that of the Funder."

- - -

"Seven years jail for mortgage originator"

http://www.asic.gov.au/asic/ASIC_PU...ars+jail+for+mortgage+originator?opendocument

"Mr David Knott, Chairman of the Australian Securities and Investments Commission (ASIC), today advised that Andrew Kenneth Nuske, a bankrupt and former director of Mancross Pty Ltd (in liquidation), has received a seven-year jail sentence, with a non-parole period of two and a half years. ...
Throughout 1996, Andrews Corporation provided Mancross (trading as the South East Queensland Home Loan Centre) with over $1.2 million on the basis the Mr Nuske would on-lend these funds as short-term bridging finance to mortgage applicants, mainly from the rural sectors of Queensland and New South Wales. "

- - -

I believe that RAMS are also a type of mortgage originator - except that they not only originate the loans, but they also source the funds from the financial markets themselves. They are NOT a bank !

In fact RAMS actually stands for "Registered Australian Mortgage Securities" !!!

http://www.rams.com.au/About/OurStory.asp

"RAMS is a 100% Australian owned and operated company. It is a unique group, certainly in Australia and probably anywhere in the world, in that it is the only home loan company that originates, processes, manages and funds all its mortgages."

"RAMS gets the money it lends to you for home loans from the financial markets through a process known as "securitisation.""

 

[Mike]

Hi Sim,

Looks like you could be right. I've just visited the Mortgage Industry Association of Australia (MIAA) website at http://www.miaa.com.au and used their service search form at http://www.miaa.com.au/services.html to find a list of members in NSW from whom I can get a loan. The list contained Mortgage Brokers and Mortgage Originators. I went to http://www.acehomeloans.com.au/ who claim to be a Mortgage Originator and found that they are not an independent mortgage broker. They are a lender.

I'm off to bed now, due to something called a Job, but I'll e-mail MIAA for clarification. If they e-mail back today I should be able to post their reply about 5pm AEST. Noteworthy about Vision Home Loans is that they are not listed in Yellow Pages Online in the Mortgage Broker category and they don't mention on their site being a member of any accredited association like MIAA.

Regards, Mike

 

[Mike]

Hi Sim,

Here's a few definitions found on some Glossaries:

mortgage broker

A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.

http://www.azee.com.au/glossary_m.htm

mortgage intermediaries - institutions such as mortgage managers who are responsible for marketing and selling loans provided by mortgage originators.

mortgage manager - a company responsible for managing every facet of a borrower’s loan. Often sources loans from mortgage originators.

mortgage originator - retail and more often wholesale lender who sources securitised funds in order to package them as loans.

http://www.yourmortgage.com.au/essentials/main.cfm?page=glossary

Also a worthwhile document to read is the Prospectus and Application for ASX Listing by Homeloans Limited. It gives a good overview of the mortgage industry and how the business of originating and managing loans works.

http://www.homeloans.com.au/new/corp/prospectus_body_final.pdf

A sample:

HOMELOANS WRITES ITS BUSINESS THROUGH INTERNAL AND EXTERNAL SALES TEAMS

Homeloans utilises internal and external sales teams to originate business. The internal teams are managed by Sales Managers. The Sales Managers' role is to recruit, train, motivate and control a team of mobile lenders. Business is generated by way of direct advertising, referral networks via real estate agents, financial planners, accountants and personal referrals.

The external team is managed by a Business Development Manager who sources business from external brokers who deal with a number of mortgage suppliers. The Business Development Manager competes with the major and regional banks, specialists mortgage providers as well as other mortgage managers. The external broker market is highly volatile and business volumes can reduce quickly if pricing or service delivery becomes uncompetitive.

The Directors of Homeloans Limited believe a high internal loan generation target is realistic and realisable, with experience indicating internal business grows in line with the time established in the particular market. Across the group during the financial years ended 30 June 1999 and 30 June 2000, some 59 per cent of sales were generated internally. This results in upfront fees paid to independent mortgage originators and trailing commissions falling, with the savings significantly improving profitability.

Homeloans is also establishing a number of strategic alliances where products managed and supported by Homeloans are badged under the name of the organisation or entity marketing and introducing the mortgage loans. A recent example is the successful launch of Raine & Horne Home Loans in NSW. A number of similar alliances are currently in development.

 

[Rolf Latham]

Hiya

Broker = more commonly referred or accepted as the agent of the borrower, more commonly accepted as being "independent" of the lender, that is representing many sources of funding.

Examples: Mortgage Choice, Smartline, Loan mart and many many smaller non franchised operators

Originator = more commonly know as the agent of the lender - usually but not always mono product line or funding source. Usually but not always NOT independent of the funding source.

Examples, Rams, Aussie Home Loans, Resi, Wizard, MHA, though some of these now also have a brokerage arm which tends to muddy the waters a bit.

Ta

rolf

 

[Mike]

which tends to muddy the waters a bit

Yes, indeed, the waters are muddy!

For example, Rolf, you say Smartline Home Loans are mortgage brokers. Then why do Bluestone Mortgages [ http://www.bluestone.com.au/default.asp?loc=http://www.bluestone.com.au/templates/business/bl.html ] list them as one of their panel lenders? Very confusing.

Type "originator" or "loan originator" into Google and see how many mortgage brokers call themselves originators. For example:

Andrew Zobel Home Loans

"As an independent home loan originator we can offer you up to 300 different loan options from major Banks, Credit Unions, Building Societies and Non Bank Lenders ensuring you get the lowest cost home loan available."

http://www.zobelhomeloans.com.au/default.asp

Lisa Davies and Associates

"DON'T think you will save money by going direct to the bank. A loan originator will generally access more products, more cheaply, than one branch manager of one bank."

http://www.lisadavies.com.au/index.asp?p=hl

In Keystart's Code of Practice (sample below) what do they mean by originator? It appears to me that they are referring to a broker. Is that right?

KEYSTART CODE OF PRACTICE
Introduction Keystart Loans Ltd

("Keystart") is the lending arm of the Department of Housing and Works and is fully owned by the State Housing Commission. Keystart's low-deposit loans are made available to members of the public to purchase a home in Western Australia. Applications for Keystart loans are made through loan originators appointed by Keystart. This Code of Practice is a statement of principles designed to set standards of practice and fair dealing between Customers and Keystart's appointed loan originators. This Code of Practice applies to, and is binding on, all loan originators appointed by Keystart Loans Ltd. Practice Standards The following Practice Standards apply to and bind all loan originators appointed by Keystart. Such originators are referred to as "the Originator" below.

Compliance with Laws 1. The Originator will always comply with this Code, the Consumer Credit Code, the Trade Practices Act and other Fair Trading legislation, and other laws and regulations applying to a transaction from the time of enquiry until the loan is discharged.

Loan Applications 2. The Originator will always disclose to an applicant all relevant details known to the originator about a proposed loan at the time of application.

3. The Originator will always make such enquiries as are necessary to determine an applicant's capacity to repay the proposed loan.

4. The Originator will submit a loan application to Keystart, whenever possible, within two (2) business days (but in any case promptly) after receipt of a duly completed application, supplying all information required by Keystart to make the decision whether or not to grant the loan applied for.

5. The Originator will always keep an applicant informed of all relevant information known to the Originator relating to a proposed loan to the extent that that information applies to that applicant.

Outcome of Loan Application 6. The Originator will advise an applicant of the loan application, whenever possible, within two (2) business days (but in any case promptly), of a loan decision being notified by Keystart to the Originator.

The rest of the doc can be found at http://216.239.53.100/search?q=cach...702new.pdf+originator+site:.au&hl=en&ie=UTF-8
or
http://www.housing.wa.gov.au/key/documents/A002_Code_of_Practice240702new.pdf

More confusion: Too many groups with the term Home Loans in the business name. Which are brokers? Which are originators?

Action Home Loans
Better Choice Home Loans
Central Coast Home Loans
EasyChoice Home Loans
Home Loans Now
Home Loans Service Centre
Home Loan Connexion
Homeloans 4U
Homeloans Limited
Jacaranda Home Loans
Rams Home Loans
Vision Home Loans
Smartline Home Loans
True Choice Home Loans

 

[Sim]

Mike, I think you need to look under the covers and judge by deeds rather than names.

What is it that the company actually does ?

Are they just a sales agent for lenders ? Then they are a broker.

Do they actually manage the mortgage themselves ? Then they are an originator.

Do they do both ? Then they can call themselves both.

The fact that there is no regulation in the mortgage brokering industry (yet) means that there is little consistency and no penalties for inventing new terms to describe your services. Hence people who call themselves originators when they are really only brokers - all just to help differentiate themselves from the competition.

 

[Mike]

Checklist to choose a Mortgage Broker

Hi Sim,

Thanks for providing a simple explanation. I'd like the industry to use the appropriate terms to help us consumers to know who we are dealing with without having to ask.

Mortgage Broker - someone who represents the consumer and provides a choice of lenders and products to best suit the consumer. A free service. Fees to be paid by the lender. A mortgage broker should not have to call themselves an independent mortgage broker. That should be implied in the term "mortgage broker".

Mortgage Originator - The Lender

Mortgage Manager - Can lend to consumers directly or through Mortgage Brokers. Represents the Mortgage Originator. Manages the Mortgage. Charges a fee.

Sim, the reason I bought this up is because I'm putting a resource post together for overseas borrowers and am e-mailing many mortgage brokers to find out which ones will happily deal with overseas borrowers. So it's important to clarify who they are dealing with. A good checklist for due diligence on mortgage brokers is:

The 12 things you must know before obtaining your home loan through a broker:

1. A broker should have a wide range of home loans from a wide variety of lenders, eg. banks, and non-banks. The wider the choice, the better the chance of finding the loan that suits you best.
2. Check the qualifications and experience of your broker, even ask for references from previous borrowers. Are they an MIAA member? Have they completed training courses?
3. Ensure your broker is not an agent for one lender in disguise. Some lenders now operate as brokers too so establish with any broker representative exactly what their role is.
4. Make sure your broker discloses all commission and payments received so you can judge whether a particular loan recommendation is being influenced by how much the broker will be paid.
5. Does the broker charge a fee? Many brokers will not charge borrowers for using their service, others will, so enquire about fees at the outset
6. Ask your broker how the loans they offer are researched and rated. Good brokers should be able to clearly outline their criteria
7. Ask your broker to provide a formal comparison of any loans recommended including the upfront and ongoing fees and the AAPR (average annual percentage rates). Ensure the AAPR is calculated specifically for the amount you want to borrow.
8. Always do some double-checking yourself to satisfy yourself you've been given unbiased and correct information. InfoChoice.com.au has free comparative tables of rates, fees and conditions.
9. Check what service is offered by the broker after the loan is negotiated. Will the broker be available for subsequent loan enquiries? What happens if there is a dispute between you and the lender?
10. Will your broker comply with the Privacy Act to ensure the security of your personal and financial details?
11. Your broker should have professional indemnity insurance. This safeguard will help you in the event of legal action.
12. As a last resort, the independent Mortgage Industry Ombudsman Scheme (1800 138 422) is available if there is a dispute you can’t resolve with your broker directly.
    [/list=1] [Source: http://www.infochoice.com.au/banking/default.asp ]