CFPB Warns Brokers Shifting to Mini-Correspondent Model

The Consumer Financial Protection Bureau (CFPB) last week clarified guidance regarding mortgage brokers transitioning to a “mini-correspondent” lender model.

Concerned that some brokers may be shifting to the “mini” model under the mistaken belief that identifying themselves as such will exempt them from certain consumer protection rules regarding broker compensation, the guidance arrives in efforts to prevent consumers being steered toward high-cost and risky loans that might not be in their interest, as what the CFPB notes occurred in the days before the financial crisis.

“The CFPB’s rules on mortgage broker compensation are intended to protect consumers from this type of abuse,” stated CFPB Director Richard Cordray. “Today we are putting companies on notice that they cannot avoid those rules by calling themselves by a different name.”

The guidance details some questions the CFPB may consider when evaluating mortgage transactions involving mini-correspondent lenders, including the examination of how these lenders are structured and operating.

Areas of examination include whether or not these individuals are continuing to broker loans, its sources of funding and whether it funds its loans through a bona fide warehouse line of credit.

Additionally, the CFPB will also consider the mini-correspondent’s lender with its investors and its involvement in mortgage origination activities such as loan processing, underwriting and making the final credit approval decision.

“The guidance makes clear that no single question necessarily determines how the CFPB may exercise its supervisory and enforcement authorities, and that the facts and circumstances of the particular mortgage transaction being reviewed would be relevant to how the Bureau exercises these authorities,” the CFPB stated.

In January 2014, the CFPB mortgage rules took effect, which require lenders to include mortgage broker compensation in calculations determining whether a loan meets certain consumer protection standards.

The CFPB is concerned that some brokers may be setting up arrangements with investors in which they claim to be “mini-correspondent” lenders, when in fact the broker is essentially just facilitating a transaction between a borrower and a lender.

“Today’s guidance confirms that mortgage brokers who merely choose to describe themselves as mini-correspondent lenders are not automatically exempt from applicable consumer protection requirements,” the CFPB stated.

View the CFPB Guidance.

Written by Jason Oliva

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