I’m sure this bulletin caused some heavy drinking amongst the General Counsel of many companies offering “mini-correspondent” arrangements this weekend.
Some months ago I wrote about this as a variation on our business models that appear to circumvent the intent of the regulation. I received quite a few questions and many were a little nauseated by what I believed, based on the discussions I have with my DC sources. My opinion at the time, and still is, to be careful how you structure your business when you do not know the temperament of the regulator on the regulation. Once they’ve ruled on issues like this, then build a model. That mentality will save your company hard-earned cash, legal costs, reputation and fines.
Many of you also told me that you received “legal opinion” that your company can do this. While I would certainly never circumvent their valuable advice to you, I do know enough attorneys to say that they never give you a categorical statement. It is likely they referred you to the law and that based on that law, your position was defensible. The problem is that you have to defend it if the interpretation by the regulator does not fall into your favor! That means more money, staff time, more scrutiny and further disruptions to your business.
So let’s think about what these investigations may look like.
- The mortgage broker has to demonstrate the business model. As I’m sure many of you know the documentation necessary to prove that out, is probably not developed to make their case.
- You are on the hook for Third Party Vendor Management and oversight. As the bigger lender offering this program you will be looked at as “knowing better”. While your policies and procedures and workflow models may appear to be cleaner than your broker clients, it is still your issue if they are not set up properly.
- Serving as the “guinea pig” on this issue will be monumental and besides the monetary issues it will cost you reputational risk.
This is certainly not the way that I like to start out your week! However, immediate correction of how you are handling this business, may give you a better chance with the regulators, versus remaining status quo until they decide they do not like your business model.