Recently, changes in regulations and current trends are resulting in a situation where many brokers are now considering a mini-correspondent channel. If you are thinking about making the change to be a correspondent lender, then it is important that you understand how it works before you decide to move forward with the transition.
With these changes, many brokers are considering the option to move to be a mortgage lender in a mini-correspondent position, which allows them to support the companies they are working with and maintain a mix of independence at the same time. The advantage is that they are able to maintain control of the financial situation and originate loans, without the implication of the 3% cap on fees and points, or the disclosure of the YSP. This trend is becoming more common, and there are many lenders that are now offering this channel of loan origination.
Complexity Problems
Even though it’s gaining in popularity, it is common for brokers to not understand the complexity of the situation before they choose to make the transition. Each broker must weigh the pros and cons to determine if it is the right move for them to transition to be a mini-correspondent.
If you’re thinking about being a correspondent lender, then it’s important that you look at the day-to-day perspective as well as the long-term implications of making the change. Most daily tasks are very similar, although there are a few differences to consider during the closing process.
As a general rule of thumb, the mini-correspondent takes the application, but then the loan will be underwritten by an investor. When the loan closes, it will be in the name of the mini-correspondent, so the loan will be funded on the warehouse line of the mini-correspondent. Next, everything is given to the investor so that they can make the purchase. The trickiest part of this process is managing the logistics, and making sure everything moves smoothly and goes according to plan.
Higher Risk
As a correspondent lender, there is a higher level of responsibility and risk associated with closed loans. It’s possible the loan can be rendered unsellable if there are issues with the origination process, such as compliance violations, changes to the qualifications of the borrower’s loan, or outdated documents. Even though the loan is underwritten by the investor, you are still putting yourself at risk.
Another element that can be risky is the fact that the channel of mini-correspondents is so new, which means that it is still untested at this point. Also, you will want to consider whether or not the change will be a profitable more for you, because there are fees which may have an impact on your profitability.
The mortgage industry can be complex, which is why it’s important that you understand these changes before making your decision. If you have any additional questions, or need help with any correspondent or wholesale lending questions, please free to contact me directly by calling (303) 520-0004.
