What is a Mortgage Net Branch?
A Mortgage Net Branch, sometimes referred to as an Affiliate Branch, is the corporate production branch office of a mortgage banking company.
The manager of a branch office is responsible for monitoring both the branch’s operating expenses and the supervision of its employees. Some branch offices consist of a single employee, whereas others are staffed with dozens of professionals.
Who is a good candidate?
The presence of three A strong candidate is a top-producing originator who is tired with making large profits for another company and only receiving a share of those profits on payday.
A team that already works successfully together at a bank or mortgage company office and wants to stay together while improving their sales, revenues, and business income is another excellent prospect.
Existing mortgage broker firms (or net branch offices) who wish to obtain multi-state and FHA/VA certification without incurring the onerous expenses and time delays involved with doing so on their own can also consider using this service.
Aren’t all programs the same?
No. There are already more than 200 banks and mortgage bankers active in this market, and each program is extremely diverse.
Some enable branch managers to broker their own loans, while others do not. Some pay 100 percent commission; some split. A minority are banker/brokers, although the vast majority are only brokers.
Very few banks are able to equip and enable their branches to undertake international business without incurring additional expenses, licenses, lost earnings, and/or regulatory restrictions. It may be challenging to make a sensible selection. Poor decision-making can be disastrous.
What are the advantages?
The yield-spread premiums are not required to be reported because the mortgage net branch manager operates a branch of a bank or mortgage banking organization. This is among the key benefits.
As subprime products have mostly disappeared, FHA and VA mortgages will account for a bigger share of the volume of mortgage loans. Obtaining clearance for these types of loans is expensive, time-consuming, and convoluted. These licenses are held from day one by the mortgage net branch manager.
If your mortgage net branch is a globally or federally licensed bank (which is uncommon), then you have the powerful advantage of being able to conduct business nationwide with almost immediate start-up capability and without having to wait for costly state licenses.
The majority of mortgage net branch managers opt to concentrate on origination, the final significant aspect (and usually hate paperwork).
A competent mortgage net branch company will not only provide routine services such as payroll and accounting, but will also handle compliance and regulatory responsibilities (audits, etc.) to the greatest extent possible, allowing the branch manager to focus on what they do best: mortgage origination!
What are the disadvantages?
Managers will broker out the majority of their loans if the mortgage net branch corporate body fails to give competitive programs to its branches (if allowed to do so). This destroys the purpose of becoming a mortgage banker and reinstates the requirement for yield spread premium disclosure.
There are many new companies in this industry. Accounting systems frequently suffer a collapse and reconstruction at a certain level of expansion.
If a company hasn’t been in business for more than a few years or hasn’t reached a specific degree of growth, it’s almost guaranteed that they haven’t encountered and weathered this situation. This inevitable occurrence will result in the closure of numerous branch offices.
The necessary transition period is a further issue to consider.
The majority of mortgage net branch companies (with the exception of banks, which are exempt from state licensing requirements) will not apply for your state license until you have “signed on the dotted line,” at which point the clock starts ticking on your state regulatory agency receiving, reviewing, investigating, and (hopefully) approving your license.
The procedure (and associated expenses) must then be repeated for each state in which you plan to conduct business.
What will it cost to start up?
Costs average between $500 and many thousand dollars. A respectable mortgage net branch provider will not charge you any additional fees other than pass-through costs (e.g. HUD branch fee, etc.). If any of these businesses want an upfront charge to start a branch, run; do not walk away.
You will want a business that will both save you money and generate profits. A truly valuable mortgage net branch company should only produce revenue if it is profitable. You should not be a source of profit for them through retail sales.
Within the first few weeks/months of business, a shrewd operator will have (or quickly build) a reserve account for rent, phones, utilities, etc.
How can I tell a good program vs a bad one?
This is the most crucial question, and the answer is to ask numerous questions. Many businesses are easy to join, but the finest ones are not quite as accepting. Be wary if a criminal history check is not required.
This should raise red flags if they do not check your references or need a minimum level of experience. Keep in mind that you will not be their only destination. If another branch is run by an unethical or unprofessional branch manager, the following ill will and negative press could flow to your branch.
Continuous assistance is one of the most important factors. If the company does not put an experienced and helpful individual (or team, if possible) at your disposal to help you solve problems and develop marketing plans, they may not be as remarkable as their brochure promises. Ensure you have sufficient support.
What are the biggest mistakes when selecting a company?
The largest mistake is selecting a company that lacks the necessary experience and infrastructure (accounting, support staff, etc.) to allow expansion. Many possess simply a mortgage broker’s license and an advertising budget (website).
The second error is learning too late about operating restrictions that were never disclosed (save perhaps in the fine print of a lengthy employment contract) and which would have had a significant impact on the ultimate decision.
Participating in a branch networking system can be a satisfying and highly lucrative method to succeed in the mortgage industry today. Proceed with caution, but certainly continue!
How Does Net Branching?
Although net branching can take many various shapes, the most prevalent factual situation resembled the following: a mortgage company seeking to franchise its business would hire “branch managers” who would then start their own “marketing organizations.” The licensed mortgage business would then add the assumed name to its mortgage license.
The licensed mortgage company would then enter into a net branching agreement with the net branch manager, wherein the branch manager would be personally responsible for obtaining his/her own office lease, would be personally responsible for all branch expenses, and would be personally responsible for hiring branch employees who would be employed by the marketing firm. Neither the marketing firm nor its staff had a valid license.
Instead, they pretended that the branch and its workers were part of the legitimate mortgage organization.
The internet branch functioned under its own name, and loans were closed by the mortgage business (the difference between the licensed mortgage company’s assumed name and the marketing company’s legal name was hardly noticeable).
Typically, payments from the mortgage company to the net branch manager (based on a profit-sharing formula for the branch operation’s productivity) were issued on a 1099 basis.
In some situations, a mortgage firm might pay a branch manager as follows: 10% on a W2 basis and 90% as a “marketing fee” on a 1099 basis to the branch manager or a marketing company. However, being employees of the marketing firm and not the mortgage company, all branch employees were compensated by the marketing company.
The problem is that, according to state licensing laws (and FHA standards), in order for a person or firm to engage in mortgage-related activities that need licence, they must be licensed or employed by a licensee.
In the aforementioned example, the marketing company behaved as an illegal, unlicensed mortgage company that solicited mortgage business, employed unlicensed mortgage loan originators, earned remuneration for mortgage-related activities, and was responsible for all branch operation expenditures.
In every sense, the branch behaved as an unlicensed mortgage company. In addition, all mortgage loan originators acted illegally because they conducted mortgage business without being individually licensed or employed by a licensed mortgage company.
Risks Of Illegal Mortgage Net Branching
Throughout the years, our legal practice has seen hundreds of illegal mortgage net branch arrangements. Although net branching was nearly eliminated in the early 2000s as a result of significant enforcement operations against industry violators, it continues to reappear over time.
This cyclical net branch comeback is attributable to the fact that every day, new franchise marketing promoters are created, and they continue to target the consumer finance industry as a franchise opportunity.
Without awareness of state licensing regulations or regulatory enforcement history, franchising marketers dive headfirst into mortgage net branching (or net branching other forms of consumer lending).
The story always ends the same way, regardless of the circumstances: both the net branching company and the net branch manager are subject to substantial administrative enforcement actions by state licensing officials.
Large monetary penalties, license revocations, cease-and-desist orders, refusal of license applications, permanent exclusion from the finance industry, and/or misdemeanor or felony criminal prosecution may be levied against offenders.
In addition, when regulatory enforcement action is taken against the infringing mortgage company, it typically results in disaster for that mortgage company, in the form of license revocation and/or astronomical fines.
Typically, this resulted in the downfall of the mortgage company. The subsequent victims were the net branch manager and the marketing company.
The “marketing fees” to the net branch ended immediately, leaving the net branch manager responsible for all branch expenses with no income to cover them: rent, employee payroll, office expenses, taxes, etc. As a result, the branch manager was frequently obliged to declare for bankruptcy.
Working As Loan Officer And Finding Right Company In Starting Mortgage Net Branch
Others may choose to work with a small mortgage banker who is licensed in only a few states. Others may seek employment with a larger national mortgage banking firm licensed in the majority of the 50 states.
Those who chose a career as a home loan officer did so because they could assist families while also earning a highly nice salary.
This is as a result of the difficulties involved in constructing difficult deals for borrowers with little credit/income history or prior credit concerns. The majority of loan officers are compensated on a commission basis. Loan officers who fail to conclude a loan transaction are not compensated.
Scopes Of Work Of Mortgage Loan Originators
The extent of a loan officer’s duties is vast. In addition to understanding the rules and regulations of the various mortgage lending programs, you must also be able to qualify borrowers.
Credit reports must be readable by loan officers. They must understand how to read tax returns. Specifically when dealing with self-employed borrowers.
More importantly, one can be the most experienced loan officer in the country, but if they cannot market themselves, they will not make any money and their career will fail.
There are a great number of mortgage loan originators who achieve achievement. They are natural-born leaders who aspire to advance their careers in the mortgage industry.
Owning Your Own Business As Mortgage Broker
The establishment of a small mortgage brokerage firm is one alternative. However, the broker/owner will incur hefty costs for office setup, including licensing and bond payments.
Producing loan officers may build a mortgage branch with the aid of a larger, more established mortgage company. The corporate mortgage company will cover all expenses, including employee benefits, for all mortgage branch personnel.
All Top Producing Loan Officers Have The Opportunity To Become Branch Managers
Costs associated with licensing and bonding do not concern branch managers. They can expand their firm by partnering with a group of loan officers and support workers.
You will be able to originate government and conventional loans, as well as non-QM and specialized loans for wholesale lenders.
Branch managers require the assistance and backing of the parent mortgage firm in order to be successful and expand their teams. This form of business is known as the Mortgage Net Branch Business Model.
We Give You An Opportunity To Become A Branch Manager In The Mortgage Business
Weekly, I receive a large number of phone calls and emails from loan officers across the nation who are interested in opening a mortgage net branch. I receive phone calls and e-mails from prospective loan officer candidates who have aspirations of opening a mortgage net branch in the future despite not having taken or passed the NMLS national exam.
I applaud individuals that are self-motivated to constantly advance their jobs by having aspirations of one day owning their own company. I will assist these individuals in any way possible.
Starting Mortgage Net Branch With A Parent Mortgage Company
Therefore, let me begin by stating that opening a mortgage net branch is likely the finest alternative to opening your own mortgage brokerage office. This can be carried out without the need for large sums of money or obligations. A mortgage net branch resembles a franchise in many ways.
You are launching your own independent mortgage branch of a prominent mortgage company with a well-known name and a crew of support personnel. The majority of corporations that offer virtual branches are multi-state licensed mortgage banks.
They already have established infrastructure and significant credit lines. They are prepared to allow loan officer production teams to conduct business under their corporate umbrella.
The business model of Gustan Cho Associates is unique. Our business strategy does not include lender overlays, and we can broker non-QM and speciality loan programs to wholesale lenders. We are able to originate and close FHA and VA loans with credit scores as low as 500 FICO, manual underwriting, broker no-doc loans, bank statement loans, asset-depletion mortgages, and dozens of additional speciality loans.
Comparing Mortgage Net Branch to Real Estate Franchise Owner
The qualifications for becoming a Century 21 broker/franchisee owner are available from Century 21’s corporate headquarters. This consists of a franchise fee, reserves, a broker’s license, and a résumé.
Most likely, they would like to know not only if you could afford the branch location of the new Century 21 branch office, but also how successful it will be in the future.
Most real estate businesses anticipate the future performance of a new independent real estate brokerage by examining the last two or more years of commissions earned by the broker/owner and the team the broker is bringing on board.
This is the same method for establishing a mortgage net branch, and in the following paragraphs we will outline the methods for establishing a mortgage net branch.
First Step On Starting Mortgage Net Branch
If you are a loan officer interested in opening a P&L mortgage net branch, you must consider the benefits and drawbacks of mortgage net branch ownership. As the owner of a net mortgage branch, it is similar to owning a business. You will sign a mortgage net branch agreement with the mortgage company’s corporate headquarters.
Most likely, the parent mortgage firm will have minimal output standards for you and the loan officers you are bringing on board. The majority of mortgage companies must produce at least $5 million per month. Motivated loan officers that want to create their own P&L mortgage branch.
Monthly production of at least $5 million is required by the majority of mortgage businesses. Gustan Cho Associates will provide loan officers with the possibility to create their own P&L mortgage branch if they are ambitious and desire to do so.
Production Requirements To Start Mortgage Net Branch
The majority of mortgage businesses have minimum production standards and will need commission statements, W2s, and tax returns for the prior two years. A typical mortgage company requires a minimum of $5 million in monthly revenue. Some need less, while others need more.
By building a new mortgage net branch, the mortgage firm’s parent company is taking a risk. This is due to the fact that the parent firm is accountable for any infractions committed by the mortgage net branch.
Those having a history of compliance infractions and regulatory issues will struggle to find a mortgage sponsor. The parent mortgage firm will need to determine if the dangers of partnering with you outweigh the potential profits.
Is It Profitable Starting Mortgage Net Branch
The initial costs for a mortgage net branch are negligible. Numerous loan officers operate one- or two-person mortgage broker shops. Others may have a team of fifty or more people. Any expenses incurred by the parent mortgage firm will be a mortgage branch’s account receivable and will be deducted from future earnings.
Numerous mortgage brokers are transforming their broker offices into mortgage net outlets. Consequently, the expense is minimal. This is because everything is just renamed to the parent mortgage company’s corporate name.
The new office lease must be renegotiated by the parent mortgage business. All vendors must be under the parent mortgage company’s name. The new mortgage net branch will be accountable for all rent, utility, salary, and other bill payments. Not permitted to have any bills billed to your name or another business name.
Profit And Loss Business Platform On Starting Mortgage Net Branch
The majority of net branches operate on a Profit and Loss framework. The compensation arrangement between you and the parent mortgage firm is per file closed.
From this commission, the loan officer is compensated according to their compensation plan. Then, all expenses, including rent, utilities, and other office expenses, are covered.
A fixed portion of the gross commissions is reserved for reserves. Typically, 10% of overall revenues. The compensation of the branch manager can be subtracted from the overall office commissions.
Choosing The Right Mortgage Net Branch
Once you’ve determined that creating a mortgage net branch is the appropriate move for you, it’s crucial to choose the right mortgage net branch.
When choosing a parent mortgage firm, you must examine the following factors:
Are you a refinancing company or a purchase company?
If you and your loan officers focus primarily on refinances, you must ensure that the rates offered by the parent mortgage firm are competitive.
This can damage your business if your price is not competitive, as many mortgage businesses are “purchasing shops” with higher rates and lucrative compensation programs.
Does the parent mortgage firm have overlays, and if so, what are the most significant overlays?
Scores of Credit?
Are there limits on account balances?
The ratio of debt to income?
Can you facilitate transactions?
Is the parent mortgage firm receptive to having a wholesale relationship with specialist lenders through a broker?
There are numerous parent mortgage lenders who only want you to sell their mortgage loan products and who are opposed to brokering/correspondent lending.
State Licensing And Compliance Requirements
Licensing by State:
- Access to specific states or a large number of states may effect your firm, depending on your business model.
- Some mortgage lenders are licensed in each of the fifty states.
- Others are authorized in a few states
- The fact that the corporate office is licensed in all 50 states does not indicate that you and your loan officers can be licensed in any state.
- The branch must be licensed in the state for which you or your loan officer apply.
- Not only is it necessary to pay the branch licensing fees, but the approval time for a state license is of utmost importance.
- In California, for instance, the cost to apply for a branch license is only $20.00.
- However, it takes more than four and a half months to obtain branch approval.
- Therefore, if you have borrowers in California and recently joined a parent company and are counting on doing business in California, the waiting period for a branch license approval with the state of California may be problematic.
- Regarding licensing, you must prepare in advance.
Types Of Loan Programs Available At Parent Company
Which business model do you and your loan officers employ?
Is it territorial, where you only rely on local company, or consumer-direct on a national scale, where you acquire loans through your website and internet marketing? Numerous mortgage lenders designate areas to mortgage net branches, in which borrowers outside of your territory are ineligible.
Parent mortgage lenders will impose a minimum monthly production requirement.
What are the repercussions if the minimum monthly output levels are not met?
There are organizations that will sever links with your mortgage net branch if you fail to fulfill minimum production requirements after a particular time period.
Expenses and fees:
What are the loan fees and pricing adjustments?
What kind of restrictions do they have?
Do they set aside a specific proportion of your monthly production for reserves?
Processing and Authorization:
Need to determine the company’s policy regarding in-house processors and underwriters.
Certain businesses will need you to utilize just corporate processors and underwriters.
While other businesses permit you to select your own mortgage processor and mortgage underwriter, we do not.
What are the underwriting turnaround times?
Will corporate allow you to extend your firm by opening satellite locations?
If so, are you assigned a territory, or may you open branches across the nation?
Mortgage Branch Opportunities
When you think of your ideal relationship, you see someone who can provide you with direction, stability, opportunities, technology, and support. The secret to your success lies in collaborating with a firm that excels in experience, service, offerings, and opportunities.
A mortgage net branch is a branch of a bank that primarily lends money at interest and does not make mortgages, but instead lends money for the purchase of homes by others.
The branches are similar in concept to credit unions, and they are also called mortgage brokerages or mortgage bankers.
In general, there are three different types of mortgage net branches. They are: commercial banking, community banking and specialty finance.
Commercial banking branches have large amounts of cash and lend large sums of money. They are the primary lender of money for companies and businesses.
Community banking branches are smaller than commercial banks and primarily lend money to individuals or families for home purchases.