Correspondent lenders reject Basel warnings

Correspondent lenders have rejected the idea that their operations could be put under pressure by plans to change capital adequacy in the Basel Capital Accords.

Though the model is widespread in the US, the UK is the only EU country to use it. With proposals to change capital weighting for mortgage loans under consideration by the International Banking Committee, questions have been raised over lenders&#39 ability to assess the risk of their loan book when accepting business through a correspondent channel.

However, Mark Charlesworth, managing director of The Mortgage Operation, does not expect that there will be any changes to correspondent lending in its current form. He says: “The Basel Agreement is based on rules for credit scoring and risk profiles, with subsequent weightings for capital adequacy. At the minute, correspondent lenders will use the risk profile of the original lender so it will not really have any impact.

“Most correspondent lenders don&#39t have a balance sheet and are simply matching the lender&#39s product before processing down to drawdown. However, it would have an impact if the correspondent lender was taking the loan on a balance sheet then lending on their own.”

Simon Biddle, marketing manager at Preferred Mortgages agrees. He says: “Unlike the US model, where the funding line resides with the correspondent lender, making it the lender for a short period of time, we have a different model in the UK. I can&#39t see Basel affecting our model but any movement towards the US model could make for differences.”