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 The Mini-Correspondent Channel: Pros and Cons

9/16/13
Article - Excerpts
What's Past is Prologue!
Is it a good deal?
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Last Monday, September 9th, we offered the Advance Copy of our White Paper and Magazine Article on the Mini-Correspondent Channel. Due to a considerable response to the article, we are now providing the published version.Back
  
The Mini-Correspondent Channel: Pros and Cons
  
September 2013
 Free Subscription to Clients and Subscribers.
 
My colleague, Michael Barone, and I wrote this article in order to highlight not just the benefits of becoming a mini-correspondent but also to outline some of the pitfalls, demanding requirements, and potential consequences
 
As we work with some lender clients on their interests in developing and implementing their mini-correspondent channels, it seems readily clear that there are certain challenges they face as well as challenges that must be overcome by those entities seeking to become mini-correspondents.
 
We are providing this just published magazine article to our subscribers, clients, and colleagues.
 
We hope you enjoy the article!
 
Regards, 
President and Managing Director 
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What's Past is Prologue!

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Several years ago, our firm, Lenders Compliance Group, provided unique guidance to the mortgage division of a bank. The bank wished to build a special origination platform for its mortgage brokers. At that time, the prevailing regulations required disclosure of the Yield Spread Premium (YSP), and the bank wanted to give their Third Party Originators (TPOs) an opportunity to close in their own name, with their own funds, and, among other things, by-pass disclosure of the YSP. In building the platform for the bank, many features were needed to implement these relationships in accordance with federal and state law, as well as safety and soundness metrics. This all took place at a time when a 3% fee cap on broker revenue was not even a glimmer in the eyes of legislators or regulators, and Elizabeth Warren  had yet to promote the creation of the Consumer Financial Protection Bureau (CFPB).
 
As Shakespeare wrote in The Tempest, "What's past is prologue."  
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EXCERPT
  

Mini-Correspondents: A Good Deal?


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Many brokers feel they are being unfairly singled out, since only their compensation is included in the 3% cap. As such, many lenders, to whom brokers are a tremendous revenue stream, have explored certain remedial options - one of which is the "Mini-Correspondent Channel".

 

Most Mini-Correspondent Channels are set up in a manner that the work flow is as follows: A broker obtains a lending license in the jurisdiction(s) in which it seeks to lend. Some states have a correspondent lenders license designed only for correspondents (i.e., Pennsylvania) and the requirements are less stringent than those states that require a correspondent lender to obtain a lenders license not limited to correspondent lending. For example, New York, does not have a correspondent lenders license, and therefore a broker who wants to be a correspondent lender would need to apply for a New York State Banker's License. After the license is obtained, the broker (now a mini-correspondent) would enter into agreements with lenders to whom it previously brokered loans (hereinafter referred to as the "investor"), whereby the mini-correspondent would take the application but the investor would underwrite the loan. The loan is then closed in the name of the mini-correspondent, but usually funded by the investor's warehouse line and immediately assigned at the table by the mini-correspondent to the investor. 
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LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the United States specializing exclusively in outsourced mortgage compliance and offering a full suite of services in residential mortgage banking for banks and non-banks. We are pioneers in outsourcing solutions for residential mortgage compliance. We offer our clients real-world, practical solutions to mortgage compliance issues, with an emphasis focused on operational assessment and improvement, benchmarking methodologies, Best Practices, regulatory compliance, and mortgage risk management.
 
This newsletter is free to subscribers, clients, and colleagues, who also regularly receive our free Mortgage Compliance Updates, Publications Notices, and Commentaries.
 
Information contained in this email is not intended to be and is not a source of legal advice. The views expressed are those of the contributing author, as well as news services and websites linked hereto, and do not necessarily reflect the views or policies of Lenders Compliance Group, any governmental agency, business entity, organization, or institution. Lenders Compliance Group makes no representations concerning and does not guarantee the source, originality, accuracy, completeness, or reliability of any statement, information, data, finding, interpretation, advice, opinion, or view presented herein.
 
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