Buying or refinancing a home represents the biggest financial transaction most of us will ever participate in. However, at the same time we’re trying to navigate the path to homeownership, we often have to take on a whole new lexicon of terms and learn about roles we might not otherwise be exposed to on a daily basis.
While you’re trying to figure out how you going to come up with a down payment, you’ll also be hearing about things like PITIA, underwriting and earnest money. It can all sound overwhelming. Once you understand a bit more about the process of buying a home and the people you’re going to be working with, things can seem slightly easier.
In this post, we’ll be discussing mortgage loan originators. You’ll learn who they are as people, and as entities, and the role they play in the mortgage process. Finally, we’ll answer some frequently asked questions about their role.
What Is A Mortgage Loan Originator?
A mortgage loan originator, or MLO, guides mortgage applicants throughout the mortgage approval process, from preparing the loan application through closing. MLOs are licensed by state and national authorities, and they’re knowledgeable about all the different types of mortgages.
When you see the term “mortgage loan originator,” it can refer to a couple of different things. A company that does mortgage originations, like Rocket Mortgage®, is an MLO. A person who takes you through the process of originating a mortgage loan, from application to closing, is also an MLO.
People who are MLOs may work on behalf of a single company that originates mortgages, or they may be a mortgage broker who takes your application and works with one of several companies.
Since an MLO can be either a person or a company, it’s worth taking a minute to break down their unique roles.
Mortgage Loan Originator: The Person
One of the first people you talk to when you get a mortgage is likely to be a mortgage loan originator. They may also be referred to as a loan officer.
In some cases, this person is a mortgage broker. A mortgage broker will take your application and show you your options from several lenders so you can compare prices and servicing policies, for example.
A mortgage loan officer’s job is to guide you through the mortgage approval process. In a refinance, that might mean helping you with the paperwork, taking documentation and figuring out the loan amount and type that fits your goals.
In a purchase transaction, you want to get a mortgage approval (often called a preapproval) before you go shopping for a home to know how much you can afford. The MLO will be able to make that determination based on your credit, income and assets.
Whether it’s a purchase or refinance, the next step for the MLO after taking a complete application and collecting documentation is to get it through underwriting – the process of making sure that you qualify for the mortgage based on your finances as well as the type of property you’re getting.
Finally, the MLO will make sure that your loan gets to the closing table. It’s at this point that you reap the benefits of your loan, either in the form of a new house or the financial benefits afforded by a refinance.
It’s important to know that the responsibilities of an MLO may fall to one person or several people depending on who you work with. At Rocket Mortgage, you’ll get to work with several Home Loan Experts who are skilled in different stages of the process so that you get the highest-quality experience all the way through.
Mortgage Loan Originator: The Lending Institution
While the term mortgage loan originator can refer to the person originating your mortgage loan, it can also mean the institution responsible for funding that loan. In the mortgage industry, loans are made through either bank or non-bank lenders.
Some mortgage loans are funded by traditional banks who hold your checking and savings accounts, lines of credit and other investments. Meanwhile, non-bank lenders like Rocket Mortgage specialize in mortgages.
Regardless of which institution initially funds your loan, it’s probably not the end of the line. Very few banks or other lenders hold a ton of loans in their portfolio to collect payments over the life of the loan because they prefer to get money on a quicker basis to make more loans.
To help accomplish that goal, the majority of mortgage loans are backed by one of several major mortgage investors, including Fannie Mae, Freddie Mac, the FHA and the VA. Loans that meet these institutional investors’ standards are insured by them before being packaged into mortgage-backed securities and sold on the bond market.
Now that you know what an MLO is and what they do, there are probably a couple of other questions that come to mind. Let’s run through them.
What Are The Licensing Requirements For MLOs?
When you’re taking financial advice from someone, it’s reasonable to want them to be licensed and to be able to trust that they have the know-how to back up what they’re talking about. In the mortgage industry, this is handled a couple of ways.
Every state has different requirements for mortgage loan officers and brokers. There’s state-level licensing required for someone to be able to originate mortgages. These include certifications or licenses that an individual loan officer must have and licenses that must be maintained by the institution funding the loan.
For nationwide banks, there are federal registrations, but non-bank lenders and local originators will have their MLOs licensed at the state level.
Lenders are also required to comply with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008. The SAFE act requires that federal and state licensing for MLOs be published in the Nationwide Mortgage Licensing System and Registry (NMLS).
The NMLS directory allows clients to check on the licensing and registration details of individual lenders and their MLOs to make sure they’re properly licensed.
How Are MLOs Paid?
The next logical question is how MLOs are paid. No one ever does anything for free. The answer depends on whether the originator is independent or employed by a lender.
Mortgage brokers are independent of any one lender and work with a variety of products across lenders. These folks are paid either directly by the client or –more commonly –on a commission from the lender they give a loan to.
When an MLO is an employee of an individual lender, they work exclusively with that institution’s product offerings. Pay structure is going to be variable depending on company policy, but it’s typically a combination of commission plus an hourly rate or salary.
Summary: MLOs Are Integral Members Of Your Home Buying Team
The role of a mortgage loan originator is to help shepherd your loan all the way from application through underwriting and to the closing table so you can get the keys or accomplish your financial goals.
An MLO can refer to both the person or people handling the loan origination process and the institution doing the loan funding. MLOs may work directly for mortgage lenders, or they may be a mortgage broker offering options for the several different institutions.
Every MLO must maintain state and/or federal licenses. Some licenses are maintained by the individual, while others are held by the lender themselves. Finally, MLOs are paid mostly on commission, although those working directly for lenders often receive an hourly rate or salary as well.
Hopefully, this has helped you pick up some understanding of how mortgage loan originators play a role in the process. If you’re ready to get started, you can begin your application online or give us a call at (833) 230-4553. For more on the mortgage process, keep reading our Learning Center!