A Mortgage Originator is a firm or individual that acts as a broker between the bank or lender and the home loan applicant to complete a mortgage transaction. After the deregulation of the banking industry in the 1980’s the banks of South Africa slowly began to adopt the American model of mortgage origination.
In this model the originator is no longer a direct employee of the bank and is instead independent. In exchange for processing applications from potential clients the originator receives a commission on registration of a home loan.
This is to the bank’s advantage as it shifts much of the expense of processing home loans onto the originator and also means that they have a wider potential market as originators are not tied to geographic areas as an employee in a branch might be.
The model suits independent originators as it essentially makes them small business owners and the only limit to their income is the number of bonds they can process without compromising the quality of their submissions.
For the prospective home loan applicant the benefits are sometimes not readily apparent but they are significant:
1) Time Saving:
The applicant, through the originator, has access to all the major banks through one submission process. Therefore, rather than having to apply to each bank individually, which is a laborious process at the best of times, they complete one application through the originator which is then submitted to all relevant banks .
2) (Informed) Choice
By approaching multiple banks simultaneously the applicant benefits from knowing exactly what each bank will offer before making a decision. This means that they can make the best decision possible using all the information at hand and avoid regret when discovering that if only they had applied somewhere else they might have received a better deal.
3) Competition drives prices down.
Even though the South African banking industry is basically an oligopoly, mortgage origination has meant that there is still some limited competition in the market. This benefits the clients in that they receive better interest rates by using originators to shop around or to play the banks against one another.
4) Free Service
ALL the services a client receives from the originator are free. The bank pays the originator a commission only on registration of the home loan. All banks use the same commission payment structure for originators which ensures that the originator does not favour a particular bank and can negotiate with all relevant banks on behalf of the client.