Definition
The term “originator” can be broadly defined based on the context in which it is used. There are three primary contexts where the term “originator” is commonly applied:
Mortgage Originator
In the context of mortgage lending, an originator is typically a bank, savings and loan association, or a mortgage banker that initially creates a mortgage loan that will become part of a pool of mortgages. The role of the originator includes receiving the mortgage application, processing it, underwriting the loan, and closing the transaction.
Securities Offering Originator
In the realm of investment banking, an originator refers to an investment banking firm that associates with the issuer of new securities from the early concept development phase. The originator supports the issuer throughout the process and frequently acts as the manager of the underwriting syndicate, which is a group of investment banks or other entities that help the issuer of the securities.
Banking Transaction Initiator
In banking terminology, an originator can also refer to the entity that initiates the instructions for a money transfer. This is usually the party who instructs their financial institution to send a payment to another party.
Examples
- Mortgage Originator: Wells Fargo Home Mortgage acts as the originator when a borrower applies for a mortgage loan to buy a house. Wells Fargo processes the loan application, conducts underwriting, and funds the loan, adding it to a pool of mortgages for potential sale.
- Securities Offering Originator: Goldman Sachs may work as an originator when a corporation decides to issue a set of new bonds. Goldman Sachs helps plan the bond issue, finalizes the terms, and usually serves as the lead manager in the underwriting syndicate.
- Banking Transaction Initiator: A small business uses Bank of America to initiate payment to a supplier. The business is the originator, while Bank of America processes the money transfer instructions to the supplier’s bank.
Frequently Asked Questions
Q: What responsibilities does a mortgage originator have?
A: A mortgage originator is responsible for accepting applications, processing them, underwriting the loans, and financing the mortgages. They play a crucial role in ensuring the loan meets both lender requirements and borrower needs.
Q: How does an investment banking firm become the originator of a new securities offering?
A: An investment banking firm becomes the originator by being engaged during the early planning stages, providing necessary support and expertise throughout the issuance process, and often leading the underwriting syndicate once the securities hit the market.
Q: Can an originator be both an entity and an individual?
A: Yes, an originator can be an entity such as a bank, savings and loan institution, or investment banking firm, as well as an individual like a mortgage banker or a broker.
- Pass-Through Certificate: A financial instrument that represents a stake in a pool of mortgage loans. Mortgage originators pool individual mortgages to create these certificates, which are then sold to investors.
- Syndicate: A group of investment banks or other financial entities that collaborate to underwrite and distribute a new securities offering.
- Underwriting: The process by which an underwriter assesses the risk of a borrower or an investment and determines the terms of the issuance or loan.
References
Suggested Books for Further Studies
- The Mortgage Originator Success Kit: The Quick Way to a Six-Figure Income by Darrin J. Seppinni.
- Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl.
- Understanding Bank Financial Statements: A Must for All Bank Directors by Edward J. McMillan.
Fundamentals of Originator: Banking and Finance Basics Quiz
### Who is typically considered a mortgage originator?
- [x] A bank, savings and loan, or mortgage banker that initially made the mortgage loan.
- [ ] A real estate agent who helped find the property.
- [ ] The insurance company that underwrites the homeowner's insurance.
- [ ] The local government office that records the mortgage deed.
> **Explanation:** A mortgage originator is typically a bank, savings and loan, or mortgage banker that first makes the mortgage loan as part of pooling mortgages for sale.
### What is the role of an investment banking firm acting as an originator in a new securities offering?
- [x] Working with the issuer from the early planning stages and managing the underwriting syndicate.
- [ ] Registering the securities with the Securities and Exchange Commission (SEC).
- [ ] Issuing dividends to shareholders.
- [ ] Overseeing daily stock market transactions.
> **Explanation:** An investment banking firm acting as an originator works with the issuer from the early planning stages and often manages the underwriting syndicate. They don't handle daily stock market transactions.
### What entity initiates the instructions for a money transfer in banking terms?
- [x] The originator.
- [ ] The recipient.
- [ ] The intermediary financial institution.
- [ ] The federal bank.
> **Explanation:** In banking, the originator is the entity that initiates money transfer instructions.
### In which context does "pass-through certificate" relate to the term originator?
- [x] In mortgage loans, where the originator pools mortgages to sell as pass-through certificates.
- [ ] In money transfers, where the certificate ensures the transaction.
- [ ] In issuing new equity shares.
- [ ] In managing mutual funds.
> **Explanation:** Pass-through certificates are related to mortgage loans, where the originator pools mortgages and sells certificates representing stakes in the loan pool.
### Which of the following most accurately describes the primary function of an originator in the context of securities?
- [x] Engages with the issuer from planning through underwriting.
- [ ] Handles daily trading activities in the stock market.
- [ ] Manages investment portfolios for private clients.
- [ ] Operates as a mutual fund manager.
> **Explanation:** In the context of securities, an originator works with the issuer from the initial planning stage and frequently handles underwriting and support functions throughout issuance.
### What primary activity does an originator in the mortgage industry perform?
- [x] Accepts and processes loan applications.
- [ ] Manages investment properties.
- [ ] Guarantees the loans.
- [ ] Determines housing market trends.
> **Explanation:** In the mortgage industry, an originator mainly accepts, processes, underwrites, and funds loan applications, playing a crucial role in mortgage issuance.
### What is the main difference between an originator and an underwriter?
- [x] The originator initiates the loan or securities, while the underwriter assesses and assumes the risk.
- [ ] The originator assesses financial risk, while the underwriter provides customer service.
- [ ] The originator processes financial transactions, while the underwriter secures insurance claims.
- [ ] There is no difference—they are the same.
> **Explanation:** The originator initiates the loan or securities offering process, while the underwriter assesses and assumes the risk of the transaction.
### How can an individual become an originator in the mortgage industry?
- [x] By becoming a licensed mortgage broker or banker.
- [ ] By completing a course in real estate.
- [ ] By working directly for a title company.
- [ ] By becoming a homeowner.
> **Explanation:** To become an originator in the mortgage industry, an individual typically needs to become a licensed mortgage broker or banker.
### In investment banking, who traditionally acts as the originator for a new bond issue?
- [x] The investment banking firm that works closely with the issuing entity.
- [ ] The payroll department of the issuer.
- [ ] The bondholder.
- [ ] The tax authority.
> **Explanation:** In investment banking, the investment banking firm working closely with the issuer during the planning and issuance phases traditionally acts as the originator.
### When a small business initiates a payment to a supplier, who is the originator?
- [x] The small business that instructs its bank to transfer money.
- [ ] The supplier receiving the payment.
- [ ] The intermediary bank handling the transaction.
- [ ] The regional business development agency.
> **Explanation:** When a small business initiates payment, it acts as the originator by instructing its bank to transfer the required funds.
Thank you for exploring the multifaceted role of the originator through our in-depth guide and comprehensive quiz. Continue to enhance your prowess in banking and finance!
