Third-party origination (TPO) is a common practice in the mortgage industry where an external party, like a mortgage broker or correspondent lender, acts as an intermediary between you (the borrower) and a primary lender, such as a large bank or financial institution. While the primary lender provides the loan funds and services the loan after closing, the TPO handles upfront tasks like finding loan options, gathering documents, and submitting your application.
When you work with a mortgage broker—one of the most familiar types of TPO—you benefit from their access to a broad network of wholesale lenders. Rather than applying to a single bank, brokers shop your loan application across multiple lenders to find competitive interest rates and terms tailored to your financial situation. This can result in better loan offers, especially for borrowers with unique credit profiles or self-employment income.
Another type of TPO is the correspondent lender. Unlike brokers, correspondent lenders often fund the loan initially with their own capital before quickly selling the loan to a larger investor. Examples of correspondent lenders include some local banks or credit unions.
Here’s how the third-party origination process typically works:
- You contact a mortgage broker or correspondent lender to start your loan application.
- The TPO collects your financial information—such as income, credit score, and assets.
- They submit your application to a variety of wholesale lenders or fund the loan temporarily (in the case of correspondent lenders).
- The primary lender underwrites and approves the loan based on their standards.
- You close on the loan and sign final documents.
- The lender funds the loan and becomes your point of contact for payments and servicing.
Lenders use third-party originations to cost-effectively reach a broader market without maintaining a large in-house sales team. This strategy allows borrowers nationwide to access loan options regardless of geography.
Working with TPOs offers benefits such as access to more loan products and expert guidance, but it may also involve broker fees or slightly higher costs embedded in loan rates. It’s crucial to review your Loan Estimate carefully and understand where fees apply.
For more details on mortgage brokers, visit our Mortgage Broker glossary entry.
Frequently Asked Questions
Is a mortgage broker a third-party originator?
Yes, mortgage brokers are a primary form of third-party originators in the mortgage industry, acting as intermediaries who connect borrowers with lenders.
Who will I make my mortgage payments to?
After closing, you make your payments to the lender or loan servicer that funds the loan, not the third-party originator.
Are loans through third-party originators more expensive?
Not necessarily. While brokers may charge fees, competition among lenders often results in better interest rates, potentially saving you money over time. Always compare the APR to understand the true cost.
References
- Consumer Financial Protection Bureau, How to Find the Best Mortgage Lender
- Forbes, Wholesale Mortgage Lenders: How They Work
- Investopedia, Third-Party Origination (TPO)