TheMReport

44 | TH E M REP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T SERVICING THE LATEST CFPB Releases Guidance on Mini-Correspondent Brokers Brokers trying to escape the 3 percent fee cap are reminded of the rules. T he Consumer Fi- nancial Protection Bureau (CPFB) is- sued guidance last month to curb mortgage brokers transitioning into the "mini-cor- respondent" lender model in the hopes of avoiding the mortgage consumer protections affecting broker compensation that took effect in January of 2014. The guidance sets forth how the bureau evaluates transactions within the model and reaffirms exactly what the criteria are for deciding who must adhere to broker com- pensation rules, regardless of how the business structure is described. "Before the financial crisis, consumers seeking mortgages were steered toward high cost, risky loans that were not in the consumer's interest," said CFPB Director Richard Cordray. "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." Mini-correspondents are mort- gage bankers that have limited net worth. They can close loans in their own names but typi- cally utilize warehouse lines of credit that are either provided by the organization purchas- ing the loans or require ap- proval. Some critics of the model opine that the only reason for the existence of the model is to allow mortgage brokers to avoid the qualified mortgage rule's 3 percent cap on points and fees. In January, new rules took effect to prohibit financial incentives for brokers pushing borrowers toward risky loans, putting the borrower on more stable financial ground and re- ducing the chance of default. CFPB issued the guidance out of concerns that mortgage bro- kers were disguising the nature of their involvement in the trans- action, describing themselves as "mini-correspondent lenders" when in reality they were facili- tating the contract between the borrower and the lender. The guidance sets forth some criteria that the bureau will con- sider when evaluating the business model of the so-called "mini- correspondent," examining how it is structured and operating. In January, new rules took effect to prohibit financial incentives for brokers pushing borrowers toward risky loans, putting the borrower on more stable financial ground and reducing the chance of default.

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