Loan origination refers to the whole process from prospecting for borrowers to the moment a loan is closed and disbursed.
This includes the stages of:
- Credit analysis
- Administrative work
- Customer service
As a lot of resources are used to originate a loan, it is only fair that an origination fee is charged by the lender.
Which is why mortgage fallouts are often an indicator of particular interest to lenders.
However, how much constitutes a fair price is up to dispute.
An origination fee is an upfront charge by a lender expressed as a percentage of the loan amount to cover the costs of processing and issuing the loan.
While it is markedly similar to points, they are different in that points can vary with the interest rate on the facility, while origination fee doesn’t change.
Sometimes also called a processing fee, they form a sizable portion of closing costs and payable to a mortgage broker if the broker is the party originating a loan.
This is one reason why brokerages want to convert to correspondent lenders.
Do note that originators of mortgages may not own the loans.
They can either be delivered to a primary wholesale lender or sold on the secondary markets.