Independent Mortgage Brokers Find Success In Net Branch Opportunities
Are you one of the many Mortgage Brokers or individual Loan Officers considering opening a “Net Branch Office” of a larger mortgage banking institution? Or, are you a Broker considering your own warehouse line(s) of credit to expand your brokerage into mortgage banking? With RESPA reform and field compliance issues burgeoning, the flight to the “banking” side of the industry is accelerating. Why? What are the advantages of Mortgage Banking and “Branch Partnership” arrangements?
At the outset, many smaller brokerages simply don’t have the capital reserves, experience, requisite time or cash flow to establish their own “warehouse lines” and extend their own capital. The very act of hiring Underwriters, Funders, Closers, Compliance Officers and Secondary Market experts is rigorous, expensive and very time consuming. Indeed, smaller brokerages have attempted the conversion to their own detriment. By spending countless hours developing a mortgage banking capability, they’ve taken their eyes off of origination and severely impacted their incomes!
Is there a solution? Yes. Here’s a look at some of the Advantages and Disadvantages of becoming a “Branch Partner” of an existing Mortgage Banking operation. Information on the US Mortgage BranchLink partner program is available at http://branchlink.usmtg.com
Advantages of the “Net” or “Independent Mortgage Branch” Model:
1. Overnight, a smaller brokerage can level the playing field with larger banks and institutions. It’s a “turn-key” solution. The Loan Officer or Broker can continue as an entrepreneur while also gaining the firepower of the larger mortgage bank without the bureaucracy. The best of both worlds!
2. Multi-state licensing: The larger mortgage bankers are licensed nationwide...or exempt from licensure�not just in the state of the broker. This affords brokers a greatly expanded universe of homeowners to serve. For a broker to secure these state licenses independently would take months and hundreds of thousands of dollars. Mortgage Bankers with HUD Title II licensure can open opportunities for their incoming Branch Partners in multiple states very quickly.
3. 100% Commissions: Many experienced Loan Officers in brokerages, banks and credit unions are only earning 35% to 75% of their originated yields. A number of quality Branch Partnerships offer 100% of both the origination fees as well as yield spread premiums. On volume, the difference in income can be dramatic.
4. Compliance: Increasingly, mortgage brokers express that they’re sleeping uneasily due to compliance pressures and dreads. The larger mortgage bankers have compliance experts on staff to insure that not only file flows are compliant and quality assured, but that individual Loan Officer and Branch licenses are current and maintained. Further, they insure that all advertising pieces are compliant in terms of Equal Housing, APR’s, Licensing and State disclosures.
5. Non-disclosure of Yield Spread Premiums: Not having to disclose YSP’s is a major advantage of mortgage banking.
6. “Direct Lender” Status: Everyone likes to deal with a direct lender. This is certainly true of both the borrowers and the mortgage broker’s referral partners. It’s simply more prestigious than brokering.
7. Broad Product Offerings: Larger mortgage bankers will have hundreds of loan products on their own banked lines all of which can be closed without disclosing YSP’s. They’ll also have broker portfolios containing 200+ investors. Here’s a key: Some of these mortgage bankers do NOT demand a “first right of refusal” from their Branch Partners nor do they impose up-charges for brokering out. Also, many smaller brokers do not have the capability to do the FHA, VA, One-Time-Close or reverse mortgages that the branch providers offer.
8. Automated Underwriting: The larger Branch Providers will have their own automated underwriting engines greatly streamlining the loan origination process.
9. Speed: Mortgage bankers extending their own capital often can adopt more flexible guidelines in underwriting and close loans faster. In a pinch, files can be “walked down the hall” for funding.
10. Accounting & Support Services: Many brokers who become branch affiliates are delighted that their mortgage banking provider’s accounting departments are taking the back office load off of them. Under HUD regulations, the corporate office of the branch provider is required to pay the branch expenses and maintain office leases. This frees up time for the branch partners to originate more loans and do what they do best originate.
11. Technology Platform: Most substantial Mortgage Bankers offer “virtual office” capabilities to their partners. Loans can be registered and locked online, conditions can be cleared, and pipelines monitored 24/7. Many are, or are becoming, paperless. Some even have Web-based Loan Origination Software (LOS) systems that allow brokers to access lenders at a click as well as third party service providers such as Title companies, Loan and Doc Prep firms, credit agencies, appraisers and AVM services. Their LOS’s also integrate with Loan Program Search Engines, offer contact management/CRM modules, eMail campaign features and much more.
12. Pipeline Absorption: Branch providers who are strong mortgage bankers extending their own capital, are usually quite adept at absorbing a new branch’s pipelines thereby smoothening their transitions.
13. Training: Often times, mortgage bankers have an expanded staff capability to conduct recurring training in FHA/VA governmental loan products, technology and LOS updates as well as marketing seminars.
14. Marketing Support: Some of the larger branch providers will actually supply leads to their branches monthly. Others will compile and disseminate leads sources for their branches. Others have spent thousands in developing HUD and RESPA compliant Fee Sharing Programs for Realtors, Builders, CPA’s, and Financial Planners those involved in “real estate settlement procedures.”
OK. What Are a Couple of the Perceived Disadvantages of Becoming a Branch Affiliate?
1. Lack of autonomy: Having to forego ones corporate name or dab identity concerns some. Then again, some of the branch providers allow their branches to use a portion of their names behind the corporate name so they can retain their identities. Couple this with the thousands spent on search engine optimization by some branch providers to create brand recognition and leads for their branches and the autonomy issue is abated.
2. W-2 Employee Status: Under HUD’s Mortgagee Letter 00-15, a “branch office arrangement” requires that all employees be W-2’d so as not be construed as a “prohibited arrangement.” Yet most branch providers allow their partners to expense as many legitimate business-related expenses as possible from their branch accounts prior to taking W-2’d income. Thereafter, the difference in being W-2’d to 1099’d is negligible.
In summary, the “net branch” or “branch partnership / branch affiliate” model would appear to offer a convincing set of advantages for independent mortgage brokers. Then again, one’s decision with respect to becoming a branch partner is highly personal and individualized. It can be a great move and an easy transition with the right branch provider. And branching certainly provides a faster and easier overnight turn-key solution compared to developing warehouse lines and creating an internal mortgage banking operation from scratch.
- Contact Information
- Frank Kuri
- Vice President Branch Development
- US Mortgage
- Contact via E-mail
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