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Contract Mortgage Processing vs In-House Processing
The mortgage industry has gone through a complete overhaul after the 2008 Financial Crisis and the Real Estate Collapse. Never in history was the housing and mortgage industry impacted like it was in this ERA. The sub-prime housing market made it anyone with a pulse be able to qualify and approved for a mortgage loan. No-doc loans, stated income loans, and other alternative mortgage loan options were popping up from every corner. Mortgage brokers and mortgage loan originators ordered the home appraisals for their borrowers and it was easy to open a mortgage broker and become an MLO. The NMLS was non-existent, and the regulatory and licensing laws were not even a fraction of how strict and monitored is today. Literally, anyone can qualify, approved, and closed on a mortgage loan. Many Americans with average income, and low credit scores took advantage of the lenient homebuying and financing process. Bottom line is the entire residential mortgage industry is now over-regulated and you can count on being equally enforced above and beyond. Each section of the mortgage process has its own rules, regulations, and enforcement policies. One of the most important steps in the mortgage process is mortgage processing. The brand and reputation of a mortgage company and mortgage loan originator has a lot to do with the training, experience, knowledge, and role of mortgage processors and how the mortgage processing system is set up. There are two categories of mortgage processors and both classes of mortgage processors are strictly regulated and enforced.
1. In-House Mortgage Processors: Mortgage processor who is hired by the mortgage broker and/or mortgage lender. Compensation can vary on how the mortgage company’s compensation plan is. Processors can get compensated hourly, salaried, commission, per file basis, or a combination of salary/hourly/per file/bonuses. The cost of the mortgage processors are absorbed by the mortgage company and the cost of running a mortgage company. Remember, that the higher the overhead of a mortgage company and/or a mortgage loan originator is trickled to the borrower. The higher the cost of successfully originating and closing a mortgage loan, the higher the lender needs to charge the borrower. Costs of a borrower on closing a mortgage loan consists of the mortgage rate, third-party vendors of the mortgage company (appraisal, discount points to buy down rate, extension on mortgage rate locks, administrative fess, tech fees, credit reporting fees, mortgage loan application fees, and contract processing fees if applicable). The key for a top-producing mortgage loan originator who is nationally known to be among the best of the best is to have a great mortgage processor and processing team. Salaries of an experienced top mortgage processors can easily surpass six figures. The average mortgage processor today averages between $40,000-$80,000.
All this regulations come from the state and federal levels.
The second type of mortgage processing class are Third-Party Contract Mortgage Processors. Since 2015, the cost of running a mortgage company has been exponentially has been skyrocketing and competition among lenders have been and continues to be brutal. Per data and numbers from the NMLS, over 40% of mortgage brokers, lenders, and mortgage loan originators are no longer in business since 2022. With the combination of intense compounding rules and regulations, cost of NMLS licensing which includes continuing education, regular annual accounting and necessary paperwork requirements such as call reports, the cost of the random audits and examinations conducted by state, and federal regulators and agencies, cost of having in-house and/or third-party regulatory and compliance staff, and cost of owning, operating, and maintenance. There are other costs in running a mortgage company which is highly dependent on the size and volume the company does. Plus, the mortgage origination industry can, and often times, is volatile and highly reliant on the real estate and other financial markets. There are times where mortgage companies can have record low revenue periods and state and federal regulators and enforcement agencies require mortgage companies and MLOs to maintain the minimum mandated net worth requirements, good credit rating with no late payments or signs of financial irresponsibility, and mandate timely payments for all of the lender’s third-party vendors. Due to the high cost of doing business including skyrocketing price increases of running credit reports, CRMs and technology systems, AI, and due to intense competition, most mortgage companies and independent mortgage loan originators are cutting down on high cost expenses. One of the big ticket costs lenders are cutting is credit reports and mortgage processing. Lenders, especially independent mortgage loan originators, and independent mortgage net branch owners and managers who need to keep competitive rates for their borrowers and intend on staying in business offering very competitive rates are making changes on sending credit report links to their borrowers due to tri-merger mortgage credit reports increasing from $27.00 per tri-merged credit report to as high as $150.00 today. The credit report fees are disclosed on the the Loan Estimate and Closing Disclosure. On a more serious note, is it is legal, and compliant for mortgage companies to charge for third-party contract mortgage processing under certain strict condition which we will cover. A mom and pop mortgage broker cannot charge a borrower a processing fee with having their in-house processor do the work. In order to charge a mortgage processing fee as a third-party charge to the consumer and not absorb this high overhead, especially for a small one man shop operator, they need to use a contract processing company. The Contract Mortgage Processing Company needs to be licensed by the NMLS as a mortgage broker in each state they have mortgage loan originators giving them business. The individual mortgage processor working for the contract mortgage processing company generally does not have to have an active NMLS license. We will cover Contract Mortgage Processing more in detail in the next post.
Mortgage Processing Company – Why Contract Processing Services Work!
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8 Replies
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Contract mortgage processing involves independent individuals or businesses handling mortgage loan paperwork and administrative tasks for mortgage brokers, loan officers, or lenders. These processors work as contractors, not employees, and typically serve multiple clients simultaneously.
As a contract processor, you manage mortgage applications from start to finish. Your tasks include reviewing loan files, collecting documents, working with underwriters, and ensuring all lending rules are followed.
If you dream of becoming a self-employed contract mortgage processor, here are some steps to launch your journey:
1. Get the right education.
Start by getting your high school diploma. Think about studying finance, business, or a similar field to learn more. The National Association of Mortgage Processors (NAMP) also offers courses to help you understand mortgage processing better.
2. Get the right experience.
Get practical experience in the mortgage industry. This will help you learn loan options, paperwork, and the important rules you must follow.
3. Get the right certifications.
Earn a certification from the National Association of Mortgage Processors (NAMP). Depending on your state, you might also need to finish the National Mortgage Licensing System (NMLS) and take continuing education courses.s.
Learn to use the software tools for mortgage processing, starting loans, and automatic loan approvals.
5. Get your business started.
Pick your business’s legal form, like a sole proprietorship or an LLC. Make sure to obtain the required licenses and permits, buy Errors and Omissions insurance, and set up a workspace dedicated to your business. Find some customers.
Contact mortgage brokers and loan officers to start building your client list. Join trade groups to grow your network. Get more experience by working with a mortgage processing company. Keep your website and marketing materials up to date and professional. Decide on your prices.
Look into what other processors charge to help set your prices. Choose if your fees will be fixed, hourly, or a part of the loan amount.
Write contracts and service agreements for your clients.
8. Be Compliant:
Know and follow all federal and state laws.
Put in place strong data security steps.
Keep clear records of every transaction you manage.
9. Strive for Improvement:
Stay updated on changes in your field and new laws.
Attend workshops to keep learning.
Join seminars to learn more.
Join a professional association. If you need more details about certifications or want tips for landing your first clients as a contract mortgage processor, feel free to reach out.
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Can you please explain a comprehensive overview step by step process on how to become a contract mortgage processing c9mpany? Do you need to be NMLS LICENSED, who do you contact to begin the process, can you become a mortgage broker and contract processor, how long is the timeline process from application to contract processing approval, when can you start business from time of application, does mortgage regulators allow temporary authority where you have a 120 day temporary authority from date of submission of mortgage broker NMLS application for contract processing?
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Can you give us a breakdown on contract processing:
1. Out of $995, what does the contract processor take and what does Kim take?
2. Doesn’t every contract processor have different charges and breakdowns?
3. Is Non-QM different from government and conforming loans?
4. How do contract processors get compensated on correspondent loans?
Thank you.
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What are the duties for a contract processor versus in-house mortgage processor? I heard contract mortgage processors do not upload documents and the MLO needs to do it? Is that true? Do borrowers complain about the added fees and costs of contract processing? What is the main difference of the scope of work and duties between Contract Processors vs In-House Mortgage Processors? Thank you in advance.
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Hello, a contract processor does the exact same work as an in-house processor. Sometimes more. I work the files from start to finish. If an MLO is uploading their own conditions to a lender, why do they need a processor at all? The entire idea of a processor is we process so LO can sell.
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Very informative reply. Thank you for sharing your knowledge. Really grateful 🙏
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Kim
Finally getting together and ready to kick ass. Welcome on-board and let go to the top.
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This video features Megan Marsh, a 20-year veteran of the mortgage industry, interviewing Samantha Gilbert from The Processing Lab to discuss the strategic value of third-party contract loan processing for mortgage brokers and loan officers.
Key Takeaways from the Discussion:
Defining Third-Party Processing: Unlike traditional in-house processing where the broker manages the staff and overhead, contract processors act as an external service (6:07). This allows brokers to shift from a fixed-cost model to a flexible, performance-based expense (8:21).
Core Duties: Contract processors manage the file from registration and disclosure through to closing (11:23). They also provide valuable guidance on lender selection, ensure compliance, and act as a bridge between the loan officer, underwriters, and borrowers (11:46, 15:41).
The Difference Between Processing and Underwriting: Samantha clarifies that while the processor is the “first line of defense” and the coordinator of communication, the underwriter is tasked with reviewing the file against specific investor guidelines to prevent buybacks (15:41).
Pipeline and Capacity: A skilled processor can typically handle between 15 to 20 fundings per month, depending on the file types (e.g., standard vs. non-QM or renovation loans) (20:33).
Cost Expectations: While pricing varies, the average cost for third-party contract processing typically ranges from $995 to $1,495 per file (22:03).
Benefits of Transitioning:
Scalability: It eliminates the need for managing internal HR tasks, such as hiring, training, and paying for vacation time or overtime (8:21).
Flexibility: Brokers can adjust their costs based on the number of loans, protecting profitability during slower market cycles (9:50).
Quality Control: By outsourcing to specialists, loan officers can often achieve faster turn times and ensure files are audit-ready, which is increasingly important in the current regulatory environment (13:34).
Note: The speakers plan to collaborate on future videos to further outline how to choose a processing company and how to set expectations for working relationships (22:54).
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