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Advice on Starting a Mortgage Net Branch

December 29th, 2020 // branchright
Advice On Starting a Mortgage Net Branch

Starting a Mortgage Net Branch

Most mortgage loan officers get great satisfaction from the work they do. One of the most amazing things about being a mortgage loan officer is that they get to make the dream of owning a home a reality for so many individuals and families. This is especially true for first-time house buyers.

Mortgage loan originators can be employed in mortgage banking firms, mortgage broker shops, credit unions, banks, and other financial institutions. There are so many employment opportunities to choose from.

Some mortgage loan officers may choose to work in small family-owned mortgage brokerage businesses where they are only licensed to operate in one or two states.

Working as Mortgage Loan Originator and Choosing the Right to Start A Mortgage Net Branch

Others may prefer to work for small mortgage banking firm where the mortgage banker is approved to operate in several states.

However, there are those who may opt to work for large mortgage banking companies that are licensed to operate in most parts of the country. Many of those who choose to become mortgage loan officers go with this option.

This career option does come with its fair share of challenges;

* Majority of loan officers are paid on commission.

* Loan officers who do not close deals do not get paid.

Scopes of Work of Mortgage Loan Officers

A mortgage loan officer performs various tasks in their line of work. Not only do you need to be familiar with the regulations and rules of various mortgage loan plans, but you also need to know how to evaluate borrowers. Loan officers need must know how to read and understand credit reports. They need to know how to read and analyze tax returns, especially if you are working with self-employed borrowers.

On top of this, a mortgage loan officer needs to know how to market themselves if they are to stand any chance of being successful. Smart marketing is crucial to succeeding as a mortgage loan officer. There are many loan officers who make a lot of money each day from selling homes to buyers from across the country. These loan officers are good at what they do and they are able to take their careers to the next level.

Owning a Mortgage Brokerage Business

Starting a small brokerage firm is one option:

Currently, upcoming loan officers have an opportunity to establish their own small mortgage brokerage shops with the assistance of a larger and more established mortgage firm. They can grow their business with the help of a few loan officers and support staff while benefiting from financial and intellectual backing and support from the parent mortgage company.

This business model is known as Mortgage Net Branch.

Advice on Starting your Mortgage Net Branch

The information shared below is for informational purposes only.

The purpose of this post is to advice loan officers who have always wanted to start their own mortgage brokerage firms but do not know exactly how to go about it.

You may have tried to ask numerous mortgage professionals about how to go about this process, but you may have or have not gotten the right answers. This blog post is not written for recruitment purposes. It is purely written as an information resource for up and coming loan officers who plan to own their own mortgage brokerage companies in the future.

I receive many inquiries and calls from loan officers who want to know how they can start their own mortgage net branch. I even receive inquiries and calls from aspiring loan officers who have not even taken or passed the NMLS exam, but plan to start their own mortgage net branch someday.

I have tremendous respect for people who have goals and ambitions to further their careers in regards to business and entrepreneurship. I will go out of my way to help anyone who wants or plans to start a mortgage net branch regardless of their current status or position.

Starting Mortgage Net Branch With Direct Lenders

Before we go any further, I must reiterate that starting your very own mortgage net branch is probably the best route you can take to owning a mortgage banking company:

You can do this without incurring a lot of expenses and exposing yourself to a lot of liabilities. Starting a mortgage net branch is like securing a franchise business of an establishing mortgage firm with an existing reputation and support staff. Most firms that offer net branches are companies that operate in most states in the country. 

These companies already have the necessary infrastructures and lines of credit required to offer mortgages to potential home owners. They are willing to allow upcoming loan officers to use their name to conduct business under the corporate umbrella.

What Is Mortgage Net Branch?

A net branch is a corporate branch office of a mortgage firm.

The manager of the net branch must sign an agreement with the main branch. The agreement will stipulate the terms and conditions under which the branch manager should operate his or her net branch. The mortgage net branch model is very similar to a real estate company franchise system. 

For instance, if you are a real estate broker and wish to open a local branch or franchise, you would visit the corporate or national offices of the real estate company and get the requirements for you to become a broker or owner of the main company’s franchise. Some of these requirements would include a resume, broker’s license, reserves, and franchise fee.

The corporate office would probably want to know if you can afford to run the new franchise or branch of the company. They would also want to ascertain the future of the branch. The most common method real estate companies use to gauge the future success of a franchise is to ask for proof of commissions of the past two or more years. They use this information to determine how successful a broker has been in the past.

The same process applies when starting a mortgage net branch. The step-by-step process of starting a mortgage net branch is described below:

Step one, if you are a mortgage loan originator who wants to establish their very own net branch, you need to consider the upsides and downsides of owning a mortgage net branch.

Running a mortgage net branch is very similar to running your own business. You will have to sign a mortgage net branch agreement with the main branch of the parent company. The main branch will issue you with some minimum initial requirements for you and your loan officers. 

Initial Requirements to Set Up Your Mortgage Net Branch

Most mortgage companies will require you to avail your tax returns of the previous 2 years, W2s, and your commission runs.

A typical mortgage firm will need at least $5 million in monthly revenue. This figure may vary depending on the mortgage company. The parent company takes on a lot of risk by opening a new branch in a new location.  The parent company assumes liability for any violations committed by the net branch. Loan officers who face numerous regulatory problems and compliance violations have a difficult time securing net branch agreements from big mortgage companies. The parent company tries its best to minimize risks and avoid unnecessary liabilities.

How Much Does It Cost To Start a Mortgage Net Branch?

One of the biggest benefits of setting up a mortgage net branch is that it does not require a huge financial investment:

Setting up other kinds of net branch businesses like real estate net branches and insurance net branches often requires a significant financial investment.

Also, mortgage companies are not allowed to collect hefty fees from individuals who wish to start their own net branches. However, the mortgage company will need to ascertain that the loan officer has the capability to deliver positive results consistently. The best indicator of future success is a loan officer’s previous performance. If your commission numbers and pipelines are good then the mortgage company will have no problem bringing you on board. 

Are Mortgage Net Branches Profitable?

As already mentioned, setting up a mortgage net branch is simple and cost effective. There are plenty of loan officers out there today who own more than one mortgage net branch. Many traditional mortgage brokers are converting their broker shops into net branches. 

This goes to show that the costs of running a net branch are pretty minimal. This is because most business expenses are assumed by the parent company. The parent company must renegotiate your current office lease. All suppliers and vendors must be approved by parent company. All your expenses such as payroll, utilities, and rent are paid using the parent company’s name, as opposed to your name or any other business name.

Profit and Loss Business Platform on Setting up a Mortgage Net Branch

Most mortgage net branches are on a Profit and Loss business platform. This platform involves the net branch and the parent company having a compensation arrangement for every deal closed. From that compensation, the loan officer gets commissions as per their comp plan. The net branches business expenses are also paid from this compensation. A fixed amount of money is set aside for reserves. This is typically 10% of total commissions. The manager of the net branch can earn a regular salary that is deducted from the total branch commissions.

All rapid re-score and credit reporting fees are paid from the Profit and Loss account. The balance of monthly commissions is diverted to the manager’s net mortgage branch Profit and Loss. This varies depending on the net branch/parent company agreement and the branch manager.

How to Choose the Right Mortgage Net Branch

Once you have made the decision to set up your own mortgage net branch, choosing the right mortgage company is extremely crucial.

Below are some of the considerations you should make when choosing a parent Mortgage Company:

Are you a purchase firm or refinance firm? If you run a refinance shop, you need to ensure that the parent company you choose offers competitive rates. Many mortgage companies are purchase firms where they offer higher rates with excellent compensation programs. However, this can be detrimental to your enterprise if your rates are not competitive.

Overlays: Check whether or not the mortgage company offers overlays and if so, what kind of overlays they offer such as debt to income ratio overlays, limits on collection balances and credit scores.

Correspondent/Broker Lending: Can you close sales? Is the parent company open to having a relationship with specialty lenders? There are many mortgage companies who simply want to sell their loan products without facilitating correspondent/broker lending.

State Licensing and Compliance Requirements

State Licensing:

Based on your business structure, being able to operate in multiple states can have an impact on your operations. Some parent companies are approved to operate nationwide. Others are only approved to operate in certain parts of the country. Something that loan officers need to know is that although your parent company is approved to operate in all states in the country does not mean that you are licensed to operate in all states.

The net branch needs to get approval from the state it is based in or incorporated in. It’s not as simple as paying net branch licensing fees.

Also, state approvals can take varying periods of time. For instance, a mortgage net branch license in California is just $20.00 but the approval takes at least 4 months. So, if you have clients within the state and you have entered an agreement with the parent company, you may have to wait several months for your branch to be duly licensed to operate. This means that you need to plan ahead if you want to own a mortgage net branch.

Types of Loan Plans offered By Mortgage Companies

What type of business model do you have? Is it nationwide if you get clients from your website and other online platforms, or is it regional if you get your clients from a particular state or locality? Many mortgage lenders assign specific regions to particular net branches for maximum efficiency.

Minimum Production: Parent companies provide minimum monthly revenue targets for net branches. What happens when you do not meet the minimum monthly targets? Some lenders will cancel their agreements with net branches that do not meet their minimum monthly targets.

Fees and Costs: What are pricing adjustments and costs per loans? What kind of hold back do they offer? Do they deduct a percentage of your monthly revenue and set it aside for reserves?

Underwriting and Processing: You need to establish what the mortgage company’s policies are in relation to underwriters and in-house processors. Some lenders will require that you only work with approved underwriters and processors. Other companies allow you to choose your own mortgage underwriter and processor.

What are the underwriting turnaround periods?

Can you expand your net branch network by setting up new branches?

If so, are you restricted to a particular region or can you open branches in any part of the country?

Benefits of Setting Up a Mortgage Net Branch

Setting up your very own mortgage net branch can be very fulfilling and profitable.

However, you need to do a lot of research and due-diligence before deciding to sign an agreement with a parent mortgage company. Choosing a company that suits you, your loan officers, your business model and your support staff is one of the best ways to start a mortgage net branch.

If you follow all the advice highlighted above, you should have no problems setting up your very own mortgage net branch in any part of the country.