The National Association of Realtors is urging the Consumer Financial Protection Bureau not to disrupt the imperative role mini-correspondent lenders play in the home-buying process for Realtors.
In a letter to CFPB Director Richard Cordray, NAR asks that the CFPB “does not unduly restrict access to credit by effectively eliminating the so-called ‘mini-correspondent’ lending channel.”
Recently, mini-correspondent lenders have started to take off, catching the eye of the CFPB due to the potential threat of creating a loophole for lenders.
Back in July, the CFPB said, “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 Real Estate Settlement Procedures Act and Truth In Lending Act 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.
While NAR supports these efforts from the bureau to prevent evasion of the Ability to Repay/Qualified Mortgage rules, it doesn’t want the rules to swing too far in the other direction and significantly constrict a Realtor’s ability to work with mini-correspondent lenders.
The association said it “also supports access and choice in credit provider channels including affiliated business arrangements and joint ventures properly established under RESPA.”
NAR listed two main examples of where the bureau should not over-emphasize:
1. In certain joint venture arrangements it simply makes more sense that the JV partner be the main partner or channel for selling loans. The value of this channel to both the partner firm and consumer is a main reason for establishing the joint venture.
2. Over the years, the mortgage banking industry has often suffered from shortages of warehouse lines. A correspondent partner would greatly value a stable warehouse line of credit. Indeed, forcing a lender to seek an outside warehouse line makes the lender more vulnerable to the whims of the market, not less. Ideally, lenders would want access to multiple warehouse lines but that has simply not been available consistently in recent history.
In a blog post last month, Lloyd San, mortgage market manager for insurer MGIC, emphasized that lenders need to adjust their strategies to new realities.
In the case of the dwindling ranks of mortgage brokers, that strategy adjustment could be to move into the mini-correspondent space. The National Association of Mortgage Brokers warns that anyone considering such a move should well consider all the risks as well as benefits.
"There may be risks someone may find unfavorable as the mini-correspondent space becomes more defined," said NAMB President John Councilman during a conversation with HousingWire. "We are working closely with the Consumer Financial Protection Bureau on defining the space and we are making headway."