If you’re a mortgage originator, then you know that one of the top concerns in the industry is compliance. Many of the newer strategies in this industry are focused on using new rules, or hiring additional help, to ensure that all of the work is in compliance with the regulations. These rules and regulations impact both the mortgage brokers and the bankers.
As a result, some mortgage brokers are considering the options to become a correspondent lender. It’s essentially a change to their business model, so instead of being a traditional broker they are now becoming a mini-correspondent.
This change can be beneficial, but it is important that you understand the differences before you make a decision. This article will focus mainly on the benefits of being a mini-correspondent lender, so that you can see the advantages that can be gained if you make the transition.
The Difference Between Traditional Brokers and Mini-Correspondents
As a correspondent lender, you still close and fund your own loans, but there are conditions and underwriting made by a wholesale lender in the purchasing position. The loans are closed and funded in the name of the correspondent lender’s funds.
One of the advantages to the changes is the fact that a mini-correspondent has a different way that they must disclose to the borrower. If you are a broker, then line 1 is the place where the Lender Paid Compensation must be disclosed. This requirement is not applicable to a mini-correspondent, which allows them to appear competitive to borrowers since they don’t need to explain the origination fee to the borrowers.
Another advantage is the fact that there is more control and flexibility in the closing process, mainly because the mini-correspondent lender is using their own funds for the transaction. Those funds are coming from the warehouse line, which gives you more options to close the loan more quickly.
Loan originators are seeing the benefits of using a mini-correspondent line because they like the control they have over their own incomes, and it allows them the flexibility to price transactions in a competitive way, so the costs can pass through the transaction. In comparison, a broker will always be limited to the 3% maximum for origination of QM loans.
Advantages and Disadvantages
As you can see there are some strong advantages to making the transition to be a mini-correspondent. Some people have found it to be very beneficial, but there are also some downsides to consider as well. If you are seriously considering this change, we encourage you to do your homework and research every step of the process, which will allow you to make an educated decision that will be the most beneficial to your company.
My goal is to help you understand every detail about the wholesale lending process, as well as options that include being a correspondent lender. If you have any additional questions or need help with becoming an approved business partner, please feel free call me directly at (303) 520-0004.
