The National Association of Realtors [1] (NAR) recently sent a letter to the director of the Consumer Financial Protection Bureau (CFPB) urging the agency to adopt a cautious approach as it puts greater scrutiny on brokers operating under the "mini-correspondent" lender model.
In a note [2] addressed to CFPB chief Richard Cordray, NAR President Steve Brown asks the director to "be mindful" of certain business concerns when evaluating arrangements between mini-correspondent brokers and lenders so as not to "unduly restrict access to credit."
Brown's letter comes months after the bureau signaled [3] it will be watching out for brokers trying to skirt its compensation rules by operating the same way under a different label. Those rules were put in place early this year as a way to remove financial incentives for brokers to direct borrowers toward riskier products.
"Before the financial crisis, consumers seeking mortgages were steered toward high-cost and risky loans that were not in the consumer's interest," Cordray said in July. "The CFPB's rules on mortgage broker compensation are intended to protect consumers from this type of abuse. Today we are putting companies on notice that they cannot avoid those rules by calling themselves by a different name."
In his letter, Brown voiced NAR's support for the bureau's efforts to stop brokers from getting around its rules but said the group "also supports access and choice in credit provider channels," including affiliated business arrangements and joint ventures.
Brown specifically points to arrangements in which the joint venture partner is the main partner or the channel for selling loans.
He also pointed to warehouse lines of credit, a product he says the mortgage banking industry has suffered a shortage of over the years.
"The withdrawal of warehouse lines and correspondent channels for selling loans has been a way the largest players have attempted to gain market share," Brown said. "By turning to comparably smaller but substantial venture partners, smaller lenders have maintained the services and access to credit they provide consumers."
He continues: "One of the major reasons why the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted was to deal with too-big-to-fail entities and industry concentration. The Bureau should therefore be mindful of the concentration effects of provisions that bar entry or growth of smaller lending entities."