The CFPB issued guidance intended to give us an idea of the criteria it will use as a supervisor and enforcer of RESPA, Regulation X, TILA, and Regulation Z when reviewing mini-correspondent lenders.[1] The guidance is titled Policy Guidance on Supervisory and Enforcement Considerations Relevant to Mortgage Brokers Transitioning to Mini-Correspondent Lenders.[2] The fact that many mortgage brokers are converting to correspondent lenders through arrangements with wholesale lenders prompted the Bureau to issue this guidance.[3] By closing, funding, and selling loans to an investor, a mortgage broker may appear as the lender/creditor, but, those who continue to broker loan transactions between borrowers and wholesale lenders are subject to the compensation restrictions set forth by RESPA and TILA. After reading the memorandum DIrector Cordray sent to its staff, it is clear the intent of the guide is to establish and inform these brokers-mini-correspondent lenders that compensation restriction regarding mortgage transactions DO NOT DEPEND ON THE LABELS THAT PARTIES USE IN THEIR TRANSACTION, and this requirements are expected of them whenever they broker a transaction.

Through the guidance, the Bureau offers a brief profile of correspondent lenders. These:

• take and processes applications
• provide required disclosures
• sometimes, underwrite loans and make the final credit approval
• may underwrite the loan
• may make final decision on credit approval
• may close the loan
• may fund the loan (often through a warehouse line of credit)
• sell the loan to an investor

Then, the guidance emphasizes the requirements and compensations related to loan origination, which still applies to mortgage brokers who originate as correspondent lenders:

• Disclosure of mortgage broker compensation
  • lender compensation to broker must be disclosed on the Good-Faith Estimate and HUD-1 Settlement Statement; these disclosure soon to become Loan Estimate disclosure
• Inclusion of mortgage broker compensation in :point and fees
  • compensation paid to a mortgage broker by a consumer or creditor is included in point and fees to evaluate the points-and-fees cap to determine a qualified mortgage or high-cost mortgage
• Restrictions on mortgage broker compensation
  • mortgage brokers may not receive compensation from both the consumer and the creditor or any other person
  • mortgage brokers may not receive compensation based on loan terms
  • these restriction DO NOT APPLY to compensation by a third party to a creditor who is NOT DEFINED as the loan originator
• Prohibitions on steering to increase mortgage broker compensation
  • mortgage brokers are prohibited from steering consumers to transactions not in their interest that increase the brokers compensation

The guidance includes a non-exhaustive, non-binding, list of questions the Bureau may consider when exercising its authority. Whenever the bureau reviews a mortgage transaction, it will focus in the facts and circumstances of the particular transaction.

The CFPB refers to mortgage brokers is on mortgage brokers who are attempting to move to the role of a correspondent lender by obtaining a warehouse line of credit and establishing relationships with a few investors. These may appear as the lender or creditor in each transaction, but in actuality have not transitioned to the mini-correspondent lender role and are continuing to serve effectively as mortgage brokers, the continue to facilitate brokered loan transactions between borrowers and wholesale lenders

I am glad the Bureau issued this guidance. As more private capital comes back to the market, more and more mortgage professionals will look for ways to profit from this development. Mortgage brokers are looking to get a bigger piece of the pie by getting more involved in the mortgage processing business. Still, mortgage bankers, mortgage brokers, and lenders remain subject to compensation disclosures whenever we originate. Although the guidance is specific to brokers, it is a good example for those who originate and perform other functions which may lead to amorphous roles whenever we originate, process, fund, and/or sell mortgages.

1) http://www.cfpbmonitor.com/2014/07/09/the-cfpb-issues-guidance-on-ensuring-equal-treatment-for-same-sex-married-couples/

2) http://files.consumerfinance.gov/f/201407_cfpb_guidance_mini-correspondent-lenders.pdf

2) http://www.consumerfinance.gov/newsroom/consumer-financial-protection-bureau-issues-guidance-regarding-brokers-shifting-to-mini-correspondent-model/

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