RSSThe Consumer Financial Protection Bureau has issued guidance warning mortgage brokers against the misuse of the “mini-correspondent” lender identification.
The bureau expressed concern that some mortgage brokers may try to use the mini-correspondent label to avoid restrictions on broker compensation.
In recent months, a number of brokers have rebranded themselves as mini-correspondent lenders in order to take advantage of certain options not available to brokers, such as closing in their own names or using warehouse lines of credit. Some critics say the move is only an attempt to avoid limits on broker compensation.
The CFPB acknowledged that there are legitimate mini-correspondent arrangements, with such lenders intending to grow into full correspondent lenders. The bureau’s guidance, however, is aimed at those who attempt to use the designation to evade consumer protection rules governing mortgage broker compensation.
Under the CFPB’s recent qualified mortgage rule, broker compensation is included in the points and fees which are capped at 3 percent of the loan amount. Other regulation requires lenders to disclose how much brokers are paid.
Merely using the mini-correspondent designation will not be enough to sidestep scrutiny from the CFPB on broker compensation regulation.
The guidance outlines questions the CFPB may ask when considering mortgage transactions involving mini-correspondent lenders in order to determine “their true nature.” These include how mini-correspondent lenders are structured, whether they still broker loans, how they are funded, their relationship with their investors, and how they are involved in mortgage originations.
“Before the financial crisis, consumers seeking mortgages were steered toward high-cost and risky loans that were not in the consumer’s interest,” said CFPB Director Richard Cordray in a press release. “The CFPB’s rules on mortgage broker compensation are intended to protect consumers from this type of abuse. Today we are putting companies on notice that they cannot avoid those rules by calling themselves by a different name.”
