Some in the industry believe mini-correspondents are legitimate require special attention from lenders. Others believe the primary reason for being a mini-correspondent is so that mortgage brokers do not have to comply with the Consumer Financial Protection Bureau maximum fee of 3% rule.
Mini-correspondents are mortgage bankers. The net worth of the mini-correspondent is set by the investor buying the loan. However, at least in California the mini-correspondent must close the loan in its own name with its own funds or warehouse line. Table funding is not allowed, at least in California. Even elsewhere if the loan is closed in the name of the mini-correspondent but is table funded or the sale of the loan is restricted CFPB can take the position it is still a broker and discipline accordingly.
As a mini-correspondent the fees paid by the purchaser of a closed loan do not have to be disclosed to the borrower since it is a secondary market transaction but fees paid on a brokered loan do have to be disclosed. In order for the loan to qualify as a qualified mortgage the fee from lender to the broker is limited to the 3% rule. However, if the loan is funded by the lender as a mini-correspondent then as a secondary market transaction it is not an issue for CFPB and what is more does not have to be disclosed to the borrower.
Before you make the move, you must consider the risks. One of the biggest in this attorney's opinion is that warehouse lenders require personal guarantees. This means if the loan is not taken off the warehouse line on time because you cannot sell it, your personal assets are at risk. This is not the case if you are a broker with the right type of vehicle for brokering loans. Good luck on whatever way you decide to go.
Herman Thordsen is an attorney with the Thordsen Law Offices, Costa Mesa, Calif. For over 40 years Thordsen Law Offices has represented clients in many areas of law including general real estate matters.