Mini-correspondent lending divisions started to take off after the Consumer Financial Protection Bureau’s qualified mortgage rules went into effect on Jan. 10, creating a possible loophole for lenders and catching the CFPB’s regulatory eye.
The CFPB released a report Friday saying, “The CFPB 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.”
As a result, the bureau published guidance on how it evaluates mortgage transactions involving mini-correspondent lenders, confirming who must comply with the broker compensation rules, regardless of how they may describe their business structure.
The guide outlines the RESPA and TILA consumer protections potentially affected by the transition of a mortgage broker to a mini-correspondent lender, along with a discussion of the regulatory framework under Regulation X and Regulation Z that determines the role and obligations of the parties in a mortgage transaction.
The CFPB said it would closely monitor the practices of mini-correspondents, including former mortgage brokers that have converted to this form.
A year ago, HousingWire wrote, “Brokers are rethinking whether they should be mortgage bankers due to the recent qualified mortgage rulings by the Consumer Financial Protection Bureau. Some brokers are debating if they should switch to some kind of correspondent model because they think it gives them greater control of their pipelines."
And since then, more lenders have jumped into the mini-correspondent business, whether these reasons were their motivation or not.
New Penn Financial’s new mini-correspondent business model was aimed to cater to community banks and credit unions. The funding allows those lenders to close in their own name, instead of listing New Penn in the mortgage documents.
“Correspondent lending needs to fit a certain framework. To be successful it has to contain structure for small mortgage bankers and banks with the ability to fund their products who are also risk-aware but don’t have the wherewithal to deal with that risk effectively. Investors providing services such as prior approval underwriting, doc prep and compliance reviews help to fit perfectly into this space,” New Penn Financial’s head of correspondent lending Lisa Schreiber said.
However, “not everyone is a big fan of mini-correspondents. Fans, on the other hand, often say that's what happens when brokers become bankers,” HousingWire’s magazine feature Return of The Correspondent Lender said.
“The CL models work really well with brokers making the shift to correspondent,” said Thomas Wind, executive vice president of home lending at EverBank. Wind believes that community-focused institutions need to present themselves as being able to fulfill the transaction and close the loan in their name.