The Mini-Corr's Fallacy
A mini-correspondent (mini-corr) transaction is not a brokered transaction.
Brokers deliver applications to wholesale companies. Sometimes, brokers may choose to launch a mini-corr transaction with the same investor.
The end result is a fee to the broker, but the legal and regulatory risks are significantly different.
does not create an asset
does not create a liability
does not hold a borrower's escrow funds
A mini-corr does them all.
The unrecorded asset and liability may create certain challenges, but the biggest risk is the failure to record the escrow liability and segment the escrow cash, which is a regulatory violation for each occurrence.
When a borrower brings escrow funds for taxes and insurance to the loan closing, even if the mini-corr uses the borrower's funds to reduce the funding amount from the warehouse lender and does not receive cash from the title agent, the mini-corr receives and is holding the borrower's funds.
Holding borrower funds require compliance with the rules for fiduciary funds.
Brokers thinking that the regulatory and accounting process for a broker is the same as a mini-corr is the fallacy held by some brokers that could result in a significant regulatory fine.
The only solution is to account for all mini-corr loans (held for sale) at each month-end, identify the amount of the escrow fund for each loan, and transfer enough cash to the escrow cash account at the warehouse bank that is enough to cover the escrow liability.
Brokers are familiar with receiving a check or wire for each brokered loan and may think this is all that is required of a mini-corr transaction when the mini-corr complexity is significantly different.
Be aware of the mini-corr complexity to avoid the mini-corr fallacy.
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