Mortgage Broker vs LenderHypothekenmakler vs. Lender
Minicorrespondent loans are becoming more and more common. It is seen, among other things, as an attractive option to mortgage brokerage, which is facing ever stricter regulations. Thus, for example, the indemnification of a mortgage lender to a broker will require disclosures to the customer, while the indemnification of a retail buyer to a lender will not.
Similarly, the charges made by the lender to a broker will be credited against the 3 per cent "points and charges" limit prescribed by the Dodd-Frank Act, while charges arising from the selling of credit in the aftermarket will not. Bonafide bona fide derivatives are also excluded from RESPA. It is argued by some that many mini-correspondents are basically agents who basically act only on behalf of lenders, and that they may be short of key lenders, such as the funds to buy back a problem credit or the necessary infrastructures to protect against frauds and misuse.
For some, the scheme is also seen as a way of circumventing broker regulation. There are others who point out that while equity may be lower, warehousing facilities still need a mini-correspondent who meets certain finance and rating threshold. Storage line means higher fiscal report duties and due care checks performed by the storage lender.
While government demands differ, many states have higher asset and loan demands for corresponding creditors than estate agents. Minicorrespondents usually also have the supervision of deposit creditors and depositors to make sure that the rules are followed and that secured credits comply with normal depositor policies. CFPB's policy guidance issue is concerned with the potential for some mortgage brokerage firms to enter into agreements with potential buyers where the broker purports to be a "mini-correspondent lender", even though he still acts largely as a broker.
CFPB notes that intermediaries who refer solely to themselves as "mini-correspondent lenders" are not necessarily exempted from the rules and regulation that govern mediated deals - and CFPB's Policy Guidance establishes how it will assess deals with mini-correspondent creditors in order to comprehend their " real character " and determine which actors are required to abide by broker law, regardless of how they themselves are able to relate.
According to the Guidelines, the CFPB will examine, inter alia, the following issues: Did the Minikorrespondent still act as a mortgage broker for some mortgage deals? What is the difference between these operations and their "lender" operations? As many " investor " buy the credits of the minicorrespondent? Do Minikorrespondents lend funds with a "bona-fide warehouse line of credit"?
Does the line of credit come from an external warehousing company? What was the depth of the procedure for obtaining authorisation for the stock line of credit? 3. The minicorrespondent have more than one stock line of credit? No. Whilst the deposit lender is one of the buyers buying credits from the mini-correspondent (or an investor's subsidiary)?
Does the correspondence clerk have to resell the credits to the deposit lender (or its subsidiary)? How many percent of the entire original month sales volumes of the mini-correspondent does he deliver to the deposit lender (or his subsidiary)? Is the storage space of the mini-correspondent in proportion to its magnitude (i.e. its wealth or net worth), which generally corresponds to the corresponding creditors?
Which changes has the Minikorrespondent made to personnel, processes and infrastructures to assist the mortgage broker's move to Minikorrespondent? How has the Minikorrespondent been trained or instructed to better understanding the added regulatory risks of mortgage brokerage? What company carries out most of the main mortgage activity?
And who else makes the ultimate credit decisions? How much of the main lending activity (e.g. proposal, handling, subscription) is carried out by the mini-correspondent (or his "independent agent")? When most of the major lending activity is carried out by the investors, is there a schedule to transfer these activity to the mini-correspondent?
Which requirements must be fulfilled for this transfer (e.g. number of credits, time)? CFPB says that not a question necessarily defines how it will use its powers and that it will take into account the'facts and circumstances' of the mortgage business in question. Unfortunately, although the Bureau has established a shortlist of issues, it gives them no importance and no indication as to how many of the issues a mini-correspondent must address or how the responses will be weighed, nor does it give any vivid example.
A lot in the sector will complain about the resemblance of this guideline to the'sham' JV Guideline published in 1996 by the Ministry of Housing and Urban Development under its former RESPA agency to analyse the waiver from the affiliate commercial arrangement. However, many in the sector will complain about the resemblance of this guideline to the'sham' JV Guideline published in 1996 by the Ministry of Housing and Urban Development under its former RESPA agency to analyse the waiver from the affiliate commercial arrangement. 2. Mortgage brokers considering the transition to a mini-correspondent must fulfill their duty of care.
Specifically, in today's regulated world, this means not only examining questions such as the local legal framework in the jurisdictions in which it operates and the needs of the respective stockholders and investor, but also evaluating the questions posed by CFPB's policy guidance. Although the guidelines' basic rules are not mandatory, they will lead the Presidium in the exercise of its oversight and enforcing powers and could possibly also be used in the assessment of RESPA's subsidiary exception.
How the Bureau will implement these new guidelines will remain to be seen, and there are many open question, but the asked question offers some generalisations. Clearly, the Bureau would be critically disposed towards an entity whose operation and facilities for'lender' transaction are not materially different from its previous or present'brokered' transaction.
The Commission will be interested in the stock line of credits and whether they appear to be the outcome of normal commercial transaction and whether they have reasonable commercial conditions and sufficient capacities for the company. CFPB will be more sensitive to surgeries involving a "proprietary" storage line. On the other hand, it seems to prefer to have more than one line of credit and to sell committed credits to more than one sponsor, even to sell a significant amount of credits to third parties other than the stockholder.
CFPB will require solid adherence to the rules by lenders. Most importantly, the CFPB may consider the mini-correspondent scheme to be appropriate only to the degree that it is part of a verifiable transfer to a full CCR.