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How to Start a Mortgage Net Branch

November 3rd, 2020 / branchright

Below, you’ll find essential information that can help you if you’re considering launching a mortgage net branch.

Opening A Mortgage Net Branch

Many mortgage loan officers are dedicated to the work that they do. Working as an original mortgage lender allows you to bring people’s dream of homeownership to life. Assisting first-time home buyers can be especially rewarding. 

There are roles for mortgage loan officers at credit unions, banking firms, broker shops, banks, and other facilities. There are numerous opportunities available. In some cases, lenders prefer to work in smaller brokerage shops that only cover a handful of states. 

Launching a Career as a Loan Officer and Deciding On A Company to Work For 

Because loan officers have many employment opportunities, they can focus on finding a job that’s a good fit for them. As mentioned above, some lenders gravitate towards small brokerage shops, while others choose to work with larger firms with a national presence. 

Working as a mortgage loan officer can be rewarding, but it can be challenging as well. It’s important to be aware of these challenges before entering the field. 

It’s standard for loan officers to receive payment via commission. When officers fail to close on a loan, they don’t receive payment. 

What Mortgage Loan Officers Do 

A loan officer has a wide range of job responsibilities. Lenders need to be able to vet borrowers to ensure that they are qualified for a loan. This means it’s necessary to understand how to interpret a credit report. 

It’s also necessary for loan officers to be familiar with regulations surrounding various mortgage loan programs. It’s important to be able to read tax returns as well. This is especially important when working with borrowers that are self-employed. 

However, one of the most essential aspects of the job is marketing. This is true for all loan officers, even the ones that are very experienced. If a lender is unable to market their services, they’ll struggle to earn commissions. 

There are a number of mortgage lenders that are very successful. The people that thrive in this field are typically natural leaders. These lenders use their strengths to build a thriving career. 

Your Options for Starting a Small Mortgage Broker Shop 

It’s possible for loan officers to launch a small mortgage broker shop. These net branches will usually only need support staff and a few loan officers. They will also require the backing of a mortgage company that is more established. The mortgage net branch business model has a track record of success. 

How to Start a Mortgage Net Branch 

Below, you’ll find essential information that can help you if you’re considering launching a mortgage net branch. This guidance will be particularly useful if you’re a loan officer that has struggled to research net branches on your own. This is a topic that’s of interest to many lenders. 

It’s not unusual for loan officer candidates that failed to pass the NMLS national examination to show interest in opening a mortgage shop of their own. Opening a net branch can help lenders to thrive in their careers. If you want to work towards this particular goal, you’ll want to take steps to strengthen your career so that you can eventually run your own business. 

How Direct Lenders Can Help You Open a Mortgage Net Branch 

If you’re interested in launching a mortgage banking business, opening a net branch is likely to be your best option. It doesn’t require a significant upfront investment, and the process can be fairly simple. 

When you open a mortgage net branch, you’re essentially running a franchise for a larger, well-known mortgage company. The majority of organizations that have net branches are large businesses that have licenses to operate in several or more states. These businesses typically have a strong infrastructure in place as well as large lines of credit. Partnering with a large company allows lenders to benefit from working with an established brand. 

About Mortgage Net Branch 

As the name implies, a net branch is a branch of a larger mortgage company. When a branch is opened, the manager of the net branch enters into an agreement with a corporate branch. The agreement covers the rules and conditions for operating the net branch. 

Operating a net branch is fairly similar to operating a franchise of an established brand. As an example, if you work in real estate, and you are interested in opening a Century 21 office in your area, you’ll need to work with Century 21 offices. These offices will work with you so that you can establish your own Century 21 franchise. 

Before you can open a franchise, you’ll need to meet certain requirements. In this example, you would need to have a broker’s license, pay a franchise fee, and meet additional requirements. You would need to establish that you can afford to maintain the branch location and that you can make it a success. 

Companies are able to predict the success of independent franchises and brokerage shops. Many factors are considered when companies are making these decisions. In this example, the owner’s commissions would be looked at, and their staff would be evaluated as well. The procedure for opening a mortgage net branch is fairly similar. 

Opening a Mortgage Net Branch 

Loan officers that are interested in opening a mortgage net branch will need to look at both the advantages and disadvantages. If you open a net branch, you’re essentially deciding to become a business owner. 

Before you can open a branch, you’ll need to enter into an agreement with the corporate branch of the mortgage company. It’s standard for parent companies to have minimum production requirements for you and the loan officers that will be on your team. 

Meeting Minimum Production Requirements for a Mortgage Net Branch 

Typically, you’ll need to meet minimum production requirements when running a net branch. Mortgage firms typically want to see at least $5 million in production monthly. In some cases, the minimum will be greater than that. Before entering into an agreement, a firm will look at your tax returns, W2s, and commission runs to see if you are capable of meeting minimum production requirements. 

When a parent company agrees to open a new net branch, they are taking on a risk. The company will be responsible for any violations that occur at your branch. If a loan officer has had regulatory issues in the past, it may be difficult for them to find a mortgage company willing to sponsor their net branch. Corporate branches will weigh risk against reward when making decisions. 

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

One of the biggest advantages of opening a mortgage net branch is that it’s typically not that expensive. Some types of franchises, such as insurance agency branches or real estate brokerage firms, have higher upfront costs, which causes franchise fees to be higher. 

However, it isn’t standard for mortgage companies to charge high franchise fees for those opening net branches. Before a mortgage company will agree to sponsor a net branch, they will evaluate the branch manager and determine whether the office is likely to meet monthly production targets. To do this, they will look at the past production numbers of loan officers. It’s standard to request pipeline reports and commission runs from the last two years. 

Is It Profitable to Open a Mortgage Net Branch? 

As mentioned below, it is fairly affordable to open a net branch. It’s not unusual to see brokers converting their shops to net branches. Many loan officers have broker shops and decide to transition to opening a net branch. 

The process tends to be fairly affordable because the branch will have the name of the sponsor mortgage company on it. Vendors will be operating under this name and brand. The sponsor company will also be the party responsible for negotiating office leases. 

The branch manager will handle rent payments, utilities, payroll, and other expenses. None of the bills can be under their name or the name of another business. 

How Mortgage-Net Branches Operate 

It’s standard for a net branch to follow a business platform based around profits and losses. The branch will have a compensation agreement with the sponsor mortgage company. When a file is closed, the loan officer will receive a commission based on the terms of the compensation plan. 

From there, expenses, such as rent, utilities, and operating costs will be paid. A specific amount of gross commissions will be placed in the reserves. Typically, this is 10% of collected revenue. 

It’s common for total office commissions to impact the branch manager’s salary. The profit and loss statement will include various expenses, such as fees for reporting rapid credit rescore. When the profit and loss for the net mortgage branch is determined, the remaining monthly commission will be taken into account. 

In some cases, it will be possible to distribute overages as draws. In other cases, overages will be withdrawn. The process will vary based on the agreement between the corporate branch and the net branch manager.

Selecting the Appropriate Parent Mortgage Company 

If you’ve decided that you would like to open a mortgage net branch, you have another important decision ahead of you. You need to decide on the sponsor mortgage company you would like to work with. 

These are a few of the many things you’ll want to take into consideration when deciding on a parent mortgage company. 

Think about the type of company you operate. If you are running a refinancing shop, for example, you’ll want to compare your rates against the rates of the sponsor company you will be working with. Many mortgage companies are purchase shops with higher rates and better compensation. However, if your rates are competitive, you may find that the company is a bad fit for your net branch. 

You’ll also want to look into overlays. If the parent company has overlays, you’ll want to identify the main overlays. Are you looking at credit score overlays? What about debt to income ratio or collection balances? Make sure you have a complete picture. 

You’ll also want to consider your ability to broker deals. It’s important to look at the broker and correspondent connections of a sponsor company and to consider your own connections. Some mortgage lenders are primarily focused on promoting their own loan products. Because of this, they may not be open to broker and correspondent lending. 

State Requirements for Compliance and Licensing 

The state your net branch is located in will have an impact on your business model, as will the parent company that you choose to work with. 

In some cases, you’ll be licensed to operate in all 50 states. In other cases, your net branch will be licensed to operate in multiple states, but not all states. 

You should be aware that even if the parent mortgage company is licensed to operate in all 50 states, your net branch may not be able to operate in all of these states. You’ll need to take the time to see where your loan officers can legally carry out operations. To start, your net branch will need to have a license in order to operate in a state. 

Either you or your loan officer will have to apply for this license. It will take time for the license to be approved, and you’ll need to do more than pay licensing fees for the branch. With that said, the cost to apply for a license typically isn’t that high. It will only cost $20 to apply for a license in California. 

Securing approval for a license can take months or more. If you have a client in a state, and your application has yet to be approved, it could cause problems for you. It’s best to plan ahead and make sure you apply for the necessary licenses at least four months before opening your net branch. 

The Loan Programs Sponsor Companies Offer 

Take a closer look at the business model you and your loan officers are currently using. Are you following a nationwide model that deals with consumers directly? Do you have a territorial model that prevents you from owning local businesses? It’s common for parent companies to assign specific territories to net branches. You may be banned from operating outside of your assigned territories. 

About Minimum Production 

As mentioned above, it’s standard for sponsor mortgage companies to have minimum monthly production requirements. You’ll need to make sure you’re aware of the consequences you’ll be facing if you fail to meet those production levels. In some cases, if you do not meet minimum production levels, the parent company will choose to end its relationship with your net branch, which could have serious consequences for you. 

You’ll also want to be aware of the fees and costs associated with lending. What will you be spending per loan? Are pricing adjustments an option?  Is there any sort of hold back in place? It’s important that you can answer these kinds of questions. 

You’ll also want to see if a specific percentage of monthly production will be allocated to the reserves. This could wind up having a big impact on your finances. 

Underwriting and processing play a big role in the lending process, which is why you’ll want to make sure you’re aware of any and all policies related to this. A firm may prefer that you use their underwriters and processors exclusively. 

Some mortgage companies, however, will let you choose the underwriter and processor that you work with. You should look at what the turnaround time for underwriting is likely to be. 

It’s important to take the future into consideration. Will expansion be an option for you, or will there be restrictions on satellite branches? If you can open additional branches, you’ll want to find out if you will be restricted to a specific territory. 

The Advantages of Opening A Mortgage Net Branch 

Choosing to open a net branch can be very rewarding, and it offers financial benefits as well. With that said, it’s important to select a sponsor company that is a good fit for your business model and needs. Beyond that, you’ll want to look at what your loan officers and staff are comfortable with. 

Keep this advice in mind if you’re considering opening a mortgage net branch. You’ll find answers to many important questions here. You shouldn’t rush to open a net branch. Instead, you should take your time and make sure you have the information that you need.

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