Making the transition from mortgage broker to ‘mini-correspondent’ doesn't necessarily mean you're off the hook in terms of compliance with the Consumer Financial Protection Bureau's (CFPB) mortgage broker compensation rules, the bureau warns in a notice issued Friday.
The CFPB says it is ‘concerned that some mortgage brokers may be shifting to the mini-correspondent model under the mistaken belief that identifying themselves as such would automatically exempt them from important consumer protection rules affecting broker compensation.’
More specifically, it is concerned that ‘some mortgage brokers may be setting up arrangements with investors in which the broker claims to be a mini-correspondent lender, when in fact the broker is still essentially just facilitating a transaction between a borrower and a lender.
‘While some brokers may be setting up such arrangements because they intend to grow into full correspondent lenders, the bureau is concerned that other brokers may simply be attempting to evade consumer protection rules,’ the CFPB says in a release, adding that ‘mortgage brokers who merely choose to describe themselves as mini-correspondent lenders are not automatically exempt from applicable consumer protection requirements.’
As such, the bureau will be evaluating mortgage transactions involving mini-correspondent lenders, in order to determine the ‘true nature’ of those transactions. In keeping with that aim, the bureau has released the following set of general questions it will be asking mini-correspondents to get a more accurate snapshot of their business models:
- Beyond the mortgage transaction at issue, does the mini-correspondent still act as a mortgage broker in some transactions, either brokering to the same wholesale lender that supplies the warehouse line of credit or otherwise? If so, what distinguishes the mini correspondent's ‘mortgage broker’ transactions from its ‘lender’ transactions?
- How many ‘investors’ does the mini-correspondent have available to it to purchase loans?
- Is the mini-correspondent using a bona fide warehouse line of credit as the source to fund the loans that it originates?
- Is the warehouse line of credit provided by a third party warehouse bank?
- How thorough was the process for the mini-correspondent to get approved for the warehouse line of credit?
- Does the mini-correspondent have more than one warehouse line of credit?
- Is the warehouse bank providing the line of credit one of, or affiliated with any of, the mini-correspondent's investors that purchase loans from the mini-correspondent?
- If the warehouse line of credit is provided by an investor to whom the mini-correspondent will ‘sell’ loans to, is the warehouse line a ‘captive’ line (i.e., the mini-correspondent is required to sell the loans to the investor providing the warehouse line (or affiliates of the investor))?
- What percentage of the mini-correspondent's total monthly originated volume is sold by the mini-correspondent to the entity providing the warehouse line of credit to the mini-correspondent, or to an investor related to the entity providing the warehouse line of credit?
- Does the mini-correspondent's total warehouse line of credit capacity bear a reasonable relationship, consistent with correspondent lenders generally, to its size (i.e., its assets or net worth)?
- What changes has the mini-correspondent made to staff, procedures, and infrastructure to support the transition from mortgage broker to mini-correspondent?
- What training or guidance has the mini-correspondent received to understand the additional compliance risk associated with being the lender or creditor on a residential mortgage transaction?
- Which entity (mini-correspondent, warehouse lender, investor) is performing the majority of the principal mortgage origination activities?
- Which entity underwrites the mortgage loan before consummation and otherwise makes the final credit decision on the loan?
- What percentage of the principal mortgage origination activities – such as the taking of loan applications, loan processing, and pre-consummation underwriting – being performed by the mini-correspondent or an independent agent of the mini-correspondent?
- If the majority of the principal mortgage origination activities are being performed by the investor, is there a plan in place to transition these activities to the mini-correspondent?
- What conditions must be met to make this transition (e.g., number of loans, time)?
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