CFPB Issues Guidance on "Mini-Correspondent" Relationships


Mini-correspondent relatioships are becoming more common.  Many wholesalers are converting their broker customers to correspondent lenders, supplying them with relatively small lines of credit for use in funding loans which will then be sold to the wholesaler.

The CFPB is warning both broker/mini-correspondents and their wholesale purchasers that these relationships might not truly change the broker to a correspondent for purposes of RESPA and TILA, particularly with respect to the Loan Originator Compensation rules.  The Policy Guidance lists a number of factors that the CFPB will consider in an enforcement situation in determining whether a given broker has truly graduated to correspondent.  It seems that having a warehouse line that can only be used to fund loans to be sold to the provider and not having in-house underwriting capability will be strong factors leading the CFPB to conclude that if it quacks like a duck, it's probably a broker.

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