In Finance, what is an Originator?
An originator is a person or entity who is the primary source of financing. For example, if someone receives a mortgage from Big Bank Incorporated, that bank would be the originator of the loan. Big Bank Incorporated could in turn sell the mortgage to another financial institution, but it would still be on record as the loan originator. Originators can offer many types of loans and credit to people who need access to funds for everything from paying for college to starting a business.
Loan originators have a number of responsibilities under the law. They are expected to use due diligence when evaluating loan applications to confirm that an application is a suitable candidate for a loan and to gather supporting information. The loan originator determines how much money the applicant is eligible to receive and makes a decision about the terms to offer. The terms may include a higher interest rate for a riskier loan and other measures which are intended to protect the originator.
When someone applies for a loan, the originator may be approached directly, or arrangements may be made through a broker or representative. In either case, the borrower must provide supporting documentation and fill out paperwork which is used to create a file which can be evaluated by a loan officer. It is important to keep records pertaining to a loan originator so that borrowers know who was responsible for originating the loan and who to contact in the event of a problem.
In order to act as a loan originator, it is usually necessary to be certified by the government. The government confirms that a company has the capability to offer loans and ensures that the company is familiar with the rule of the law when it comes to writing loans. People who work at loan originators are provided with extensive training so that they provide appropriate services to customers including fair information about the terms of the loan, accurate representation of limitations on the loan, and so forth.
This term is also sometimes used to refer to the lead party in an underwriting syndicate. When companies make new issues of securities, whether they are just going public or providing additional issues, they work with underwriting forms which provide financing and assistance so that the company can sell the securities. The originator is the firm which works directly with the company and organizes the process of developing the issues, marketing them to investors, and selling individual shares to investors who wish to buy stock.
It seems like there is a lot more due diligence being done when it comes to loans than in the past. I know that due diligence was always part of the loan application process, but the rules have become tougher.
I remember reading how years ago how some people somehow got out of paying back their student loans. I don't know how that ever happened, but I know that is certainly not the case today.
Even if someone were to declare bankruptcy, they are still responsible for their student loans. My daughter has different originators for her student loans.
Some of them are through government programs and some of them are through a private loan company. There is a difference in interest rates depending on who the loan originator is. Usually the government loans have a much lower interest rate than the private loan companies.
I have found that your credit score really does make a difference when it comes to the amount of interest rate you pay on a loan.
My son recently applied for a car loan and doesn't have the best credit. Because of this, his interest rate was very high. If he wanted to have a lower interest rate, he needed to have a co-signer on the loan.
The loan origination for this was initially through his credit union. The credit union is known to have good rates, but if someone is not a good credit risk, I can see how they have to somehow compensate for that if they go ahead and loan any money.
@bagley79 - I certainly understand what you mean when you talk about your loan getting sold. My original mortgage loan originator was a local bank that I had done business with for many years.
Since then, this loan has been sold twice and every time it is a hassle. Nothing really changes as far as payments made, but each time you are making the payment to a separate institution.
I agree that it is much easier working with people locally than talking with people on the phone who you have never met, and never will meet.
I can understand why you paid a little bit more to keep your mortgage originator local.
I have had different mortgage loans over the years, and it seems like most of them end up getting sold to another company.
The last time I got a mortgage loan, I paid a slightly higher interest rate to keep the loan in house. I have found it much easier to work with a local mortgage originator than someone across the country.
For me, it was worth paying the slightly higher interest rate to know I could walk right into my local bank and work with the people who originated the loan.
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