Let’s jump into the new fad of lending called mini-correspondent. As discussed in previous updates, there was and still is a big push by brokers to avoid the new Dodd Frank/CFPB ruling referred to as the 3% fees and points cap test.

If you speak to any wholesale broker only lender, the bigger push today ironically is coming from many of these wholesalers who exited the broker channel but still maintained a presence in the mini-correspondent space. They are “selling” hard the concept to the broker community that they really need to convert to a correspondent status.

MGIC has seen many already apply for Master Policies and anticipate more will. Having a master policy with an MI company is often viewed very favorably by wholesalers. In fact, MGIC recently took steps to streamline the application process. (Learn more here)

In any event, the numbers I’m hearing from wholesalers is that their overall percentage of mini-correspondent business is between 5% up to as high as 30%. (This is just an informal poll of some national wholesalers; nothing scientific!)

However, I also discussed with some wholesalers that many of these mini-correspondents who have agreed to structure their business differently are NOT prepared for any compliance issues such as completing HMDA reports next year and/or prepared or able to buyback a loan.

Additionally, the CFPB has not come out with any guidance with this type of structure which leads me to believe that they are still evaluating this. Many of these mini-correspondents have one small funding source and typically have relationships with 1-2 investors.

Time will tell how and if this is a viable business model. Some wholesalers have changed their business models by eliminating broker only and now focus on mini-correspondent as one of their dedicated business channels. Other wholesalers still have it as part of their original wholesale group and offering to their mortgage broker customer.

There are a lot of future unknowns with this market segment, but one thing we do know, some of these mini-correspondents will likely grow and become medium to large-sized mortgage bankers in the future!

Share your thoughts on mini-correspondent lending in the comments section below.

Lloyd San

Lloyd San - Retired MGIC Mortgage Market Manager

A 30-year mortgage industry veteran, retired in 2021, Lloyd San served as Mortgage Market Manager for Mortgage Guaranty Insurance Corporation (MGIC). Overseeing a national effort, he was responsible for managing all client-related capital market activities in the areas of bulk and correspondent loan referrals, investor introductions, structured products, whole loan sales, as well as product and personnel introductions.

In addition, he is chairman of the California Mortgage Bankers Association, Secondary Marketing Executive Committee and also serves on the Western Secondary Conference Committee.

A graduate of San Diego State University in California, Lloyd received his MBA in Financial Management from National University. He also holds a California Real Estate Broker’s License.

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