Starting A Mortgage Net Branch For Loan Officers
Advice On Starting A Mortgage Net Branch
Many mortgage loan officers love what they do and one of the greatest rewards of being a mortgage loan originator is that you can make the dream of home ownership a reality for home buyers, especially first time home buyers. Mortgage loan officers can seek employment at banks, credit unions, mortgage broker shops, and mortgage banking firms. There are so many choices of employer to choose from. Some mortgage loan originators may prefer to work for a small mom and pop mortgage brokerage shop where the mortgage broker shop is only licensed in one or two states. Others may choose to work for a small mortgage banking shop where the mortgage banker is licensed only in a few states. Yet others may want to work for a larger national mortgage banking firm where the company is licensed in most of the 50 states. Those who chose a career as a mortgage loan officer chose this profession due to the challenges it comes with. Most loan officers are on commission and if you do not close a loan, you do not get paid. A loan officer job has many scopes of work. Not only do you need to know the rules and regulations of the various mortgage loan programs, but you also need to know how to qualify a borrower by knowing to read credit reports and know how to read tax returns, especially if you are dealing with self employed borrowers. More importantly, you can be the most experienced loan officer in the country but if you cannot market yourself, you will not make any money and there goes your career. There are many mortgage loan originators who become successful in what they do and are natural born leaders where they want to take their mortgage careers to the next level. Opening up a small mortgage broker shop is one option but now producing loan officers have an opportunity starting a mortgage net branch with the help of a larger established mortgage company and grow their business with a team of loan officers and support staff with the support and backing of the parent mortgage company. This business model is called the Mortgage Net Branch Business Model For Loan Officers.
Advice On Starting A Mortgage Net Branch
This blog on Starting A Mortgage Net Branch was written as an informational guide for loan officers who always wondered in starting their own mortgage shop but cannot get answers on the internet and when they ask other branch managers of mortgage branches, they do not get the straight answer. This blog is not a recruitment piece but more of a general informational guide for loan officers who may one day open up their own independent mortgage shop. I get many calls and inquiries by loan officers nationwide weekly inquiring about starting a mortgage net branch. I even get calls and inquiries from loan officer candidates who did not even take or pass the NMLS national exam who have goals of someday starting a mortgage net branch. I respect those individuals who have goals and motivate themselves in always furthering their careers by having goals of someday having their own business. I will do anything in my power to help those individuals.
So let’s start by me adding that starting a mortgage net branch is probably the next best option you have to starting your own mortgage banking firm without needing the big bucks and the liabilities attached. A mortgage net branch is somewhat of a franchise of an established mortgage company with an established name and support staff. Most corporate companies that offer net branches are mortgage banking firms that are licensed in dozens of states already with large lines of credit and an established infrastructure and offering producing teams of loan officers to use their name to do business under their corporate umbrella. A net branch is a corporate branch office of a mortgage company. The branch manager of the net branch will have a branch manager agreement with the corporate branch and the agreement will state the terms and conditions on how the net branch manager is to operate his or her net branch. The mortgage net branch system is somewhat like owning a franchise of a real estate company. For example, if you are a real estate broker and want to open a local Century 21 Office, you would contact the corporate offices of Century 21. The corporate offices of Century 21 will have the requirements for you to be the broker/owner of a Century 21 franchise which would include a franchise fee, reserves, broker’s license, resume, and most likely they would like to know not only that you would be able to afford the branch location of the new Century 21 branch office but the future success of it. The way most real estate companies predict future success of a new independent real estate brokerage shop is by asking the past two or more years of commissions of the broker/owner as well as the team the broker is bringing in. This is the same way how to start a mortgage net branch and we will explain the steps on how to start a mortgage net branch in the following paragraphs.
First Step On How To Start A Mortgage Net Branch
If you are a loan officer and want to pursue in starting a mortgage net branch, you need to weigh the pros and cons of owning a mortgage net branch. As a net mortgage branch owner, it is like owning your own business. You will enter into a mortgage net branch agreement with the corporate offices of the mortgage company. The parent mortgage company will most likely have minimum production requirements of you and your group of loan officers you are bringing on board. Most mortgage companies will have minimum production requirements where they will want to see your commission runs, W2s, and tax returns of the previous two years. A typical mortgage company will require at least $3 million in monthly production. Some require less while others require more. The parent mortgage company is taking on a risk by opening a new mortgage net branch because any violations that the mortgage net branch creates, the parent company is responsible for the consequences. Those with a history of compliance violations and regulatory problems will have a hard time getting a sponsoring mortgage company. The parent mortgage company will need to see that the risks of taking you on board is worth the rewards.
How Much Does It Cost To Start A Mortgage Net Branch
One great advantage in starting a new mortgage net branch is that it does not cost much money like it would starting other types of franchises like a franchise insurance agency like Allstate Insurance or a Keller Williams Real Estate Brokerage Office. Mortgage companies are not allowed to charge a large franchise fee from branch managers of a new mortgage net branch. However, the parent mortgage company will want to see proof that the new net branch manager has potential in doing monthly production and continue to do so. The best indicator of future monthly production is prior production numbers and most mortgage companies will ask for commission runs and pipeline reports from the past couple of years.
Basic costs on starting a mortgage net branch is minimal. There are many loan officers who own one or two man mortgage broker shops who are converting their broker shops to a mortgage net branch and if this is the case, the cost is minimal because everything is just switched over to the corporate name of the parent mortgage company. The parent mortgage company needs to renegotiate the new office lease and all vendors need to be under the name of the parent mortgage company. The new mortgage net branch will be responsible to make all the payments for rent, utilities, payroll, and other bills. You cannot have any bills billed under your name or another business name.
Most net branches are on a Profit and Loss business platform. The way this works is that you and the parent mortgage company have a comp arrangement per file closed. From that commission, the loan officer gets paid their commissions per their comp plan. Then all expenses get paid including the rent, utilities, and other office expenses. A set amount of the gross commissions is set aside for reserves. Normally 10% of the total revenues. The branch manager can be on a salary and that salary gets deducted by the total office commissions. All credit reporting fees, rapid rescore fees, and other costs and fees are paid from the Profit and Loss Statement. The balance of the monthly commissions left over will be swept into the branch managers net mortgage branch P & L. The overages of the P & L can be distributed as a draw or withdrawn periodically depending on the branch manager and the net branch/parent company mortgage net branch agreement.
Choosing The Right Mortgage Net Branch
Once you have decided that starting a mortgage net branch is for you, choosing the right mortgage net branch is very important. Here are things that you need to consider when deciding which parent mortgage company to decided on:
- Are you a refinance shop or purchase shop? If you and your loan officers do mainly refinances, you need to make sure that the rates are competitive with the parent mortgage company you choose. Many mortgage companies are purchase shops where they have higher rates with great comp plans but this can devastate your business if pricing is not competitive.
- Overlays: Does the parent mortgage company have overlays and if so what are the main overlays? Credit Scores? Limits on collection balances? Debt to income ratio overlays?
- Broker/Correspondent Relationships: Are you able to broker out deals? Does the parent mortgage company open to having a broker wholesale relationship with specialty lenders? There are many parent mortgage lenders who only want you to push their mortgage loan products and are resistant to brokering/correspondent lending.
- State Licensing: Depending on your business model, having access to certain states or many states may affect your business. Some mortgage lenders are licensed in all 50 states while others are licensed in a handful of states. One important factor branch managers of a new mortgage net branch needs to realize is that just because the corporate offices is licensed in all 50 states does not mean that you or your loan officers is eligible to be licensed in any state. Your branch needs to be licensed in the state that you or your loan officer applies for a state license. It is not just a matter of paying the branch licensing fees but the more important issue is the amount of time it takes for a state license approval. For example, to apply for a branch license in California is only $20.00, however, it takes over four plus months to get the branch approval. So if you have borrowers in the state of California and just signed up with a parent company and you are relying to do business in California, the waiting period for a branch license approval with the state of California may be an issue. You need to plan ahead when it comes to licensing.
- What type of business model do you and your loan officers have? Is it territorial where you are just counting on local business or is it nationwide consumer direct where you get borrowers from your website and online marketing? Many mortgage lenders have territories assigned to mortgage net branches where borrowers outside your territory is off limits.
- Minimum production: Parent mortgage lenders will require a minimum monthly production. What are the consequences if you do not meet the minimum monthly production levels? There are companies that will cut ties with your mortgage net branch if you do not meet minimum production after a certain period of time.
- Costs and fees: What are costs per loans and the pricing adjustments. What type of hold back do they have? Do they take a certain percentage of your monthly production and set it aside for reserves?
- Processing and Underwriting: You need to find out what the corporate policies are with having your in house processors and underwriters. Some companies will only want you to use the corporate processors and underwriters while other companies will allow you to choose your own mortgage processor and mortgage underwriter. What are the turnaround times for underwriting?
- Expansion: Will corporate let you expand your business where you are able to open satellite branches? If so, is there a territory you are given or can you open branches nationwide?
Starting a mortgage net branch can be extremely profitable and rewarding. However, you would want to do your do diligence and choose the right company that suits you, your business model, and where your loan officers and support staff will feel comfortable. Hope this article helps those who have questions on staring a mortgage net branch.
Gustan Cho NMLS 873293
The Gustan Cho Team @ Gustan Cho Associates
Toll Free: 800-900-8569