One of the recent trends in the mortgage industry is the fact that many mortgage brokers are making the transition to be mortgage bankers or mini-correspondent lenders. There is a false assumption that with a simple warehouse line you can get started as a banker, but there are a few more things that you need to know before you make the transition.
Talk With a Lawyer
Before making a big decision with your business, it is always a good idea to talk with a lawyer who specializes in mortgage banking. You may be tempted to work with a local lawyer, or someone that you know on a personal basis, but it is better to find the most qualified lawyer to make sure you are staying within the legal regulations.
Have Insurance Coverage
As a correspondent lender, it is a good idea to have insurance. In fact, an emerging banker will be required to have a minimum of $300,000 in insurance coverage for both E&O policies as well as fidelity bonds. $300,000 is the low insurance coverage; some warehouse lenders might require as much as $500,000 in insurance coverage.
Secure Your Licensing
If you want to obtain a lending license, then it is important that you understand all of the documentation and qualifications that are required. It might be an expensive process, and you will likely need to provide financial statements that have been audited.
Hire Staff to Help
There are multiple steps that need to be taken in order to make sure you are staying compliant with the rules and regulations, and it’s not possible for a single person to handle everything on their own. The best solution is to hire a staff that can help you along the way. Another option is to outsource the compliance to a third party company that has been vetted according to the standards provided by the Consumer Financial Protection Bureau (CFPB).
Have a Minimum of 2 Investors
It is a good idea to have at least two investors available to work with when you’re ready to do a deal. If possible, you should consider building a relationship with more than 2 investors, because it will give you the opportunity to find the best terms for the customers that you are working with. Working with only 1 investor will limit your opportunities, and can be a problem in the long run if you won’t have different options to work with.
It takes time and detailed planning to be prepared and make the transition to be a mini-correspondent lender, and it isn’t a decision that should be made overnight. Your decision can impact the success and profitability of your company, which is why you need to carefully analyze the options before making a decision. Both the banking and brokerage industries are viable and profitable, so it’s important that you spend the time to fully understand the differences between the two. If you have any questions regarding setting up as an approved correspondent partner, please feel free to call Dave directly at (303) 520-0004.
