Mortgage brokers that decide to become mini-correspondent lenders had better be aware of the audit process the Consumer Financial Protection Bureau will be making to determine your transactions are really those of a lender.
The regulator plans to look at such things as:
- Is the entity using a "bona fide warehouse line of credit"
- Are the sales of loans on the secondary market "bona fide transfers" or in fact are the table-funded transactions or the equivalent of table funded transactions.
- To determine whether a mortgage transaction is a bona fide transfer of a loan obligation in the secondary market, the CFPB will look to the "real source of funding" and the "real interest of the funding lender."
- Is the creditor doing the loan using a bona fide warehouse line of credit or is it only selling the loan to one entity and that is the same entity giving it the warehouse line of credit?
- Is the entity funding the loan still brokering loans?
- Is it brokering loans to the same entity that gave it the warehouse line of credit?
- Does the creditor have more than one warehouse line of credit?
- Does the creditor have more than one investor to whom it sells loans?
- Does the mini-correspondent lender underwrite the loans?
These are but a few of the items to be audited by the CFPB in its checking the validity of the entity being a lender. To learn more read the CFPB's statement.
Mortgage brokers, you should be careful what you wish for. Remember even if you convert to a "true lender" the warehouse lender requires "personal guarantees" whereas being a broker does not require this and your personal assets are better protected.
In case you missed it, CFPB back in November 2013 released a clarification regarding its stance on split commissions between loan officers. This change of opinion makes many previous split-commission structures a potential violation under the current CFPB regulations. If you have a loan officer contract from before November 2013 and it contains a clause regarding split commissions you should seek legal counsel to have this clause revised as soon as possible.
The CFPB just loves to make changes or add more regulations or clarify things to make it easier to understand?