How To Get into Net Branch Mortgage – The Complete Guide
One of the most significant problems that many in the mortgage industry face is closing sales. While many established lenders can acquire leads and run pretty successful lead generation campaigns, all of it is for nothing if the closing rates are negligible. That’s where a Net Branch, or Mortgage Net Branch as it is called, can help.
At MortgageRight, we work with dozens of lenders across the United States, helping them generate leads and close sales. In some instances, we’ve helped raise the closing rate by more than double in a single year.
However, before you jump on board, it is worth understanding how we work and, most of all, how your business can benefit from it.
Opening a net branch is a serious business, which is why we’ve put together this guide to help mainly mortgage officers who want to get onboard, to switch their careers into high gear.
What Is A Net Branch?
It is loosely defined as a smaller branch or outpost for a more established lending brand or institution, where all the loan originators generally work under the supervision and license of the mother brand. Most mortgage net branch operators will be working from a net branch structure, which gives them the ability to direct and manage day-to-day operations while simultaneously avoiding expenses, delays, and various administrative hurdles of getting their license. In other words, business owners can take advantage of net branch opportunities without needing a license since they work under the parent company’s license.
The net branch’s structure is designed to allow loan professionals to both originate transactions and retain all the profits they gain, minus the parent company’s oversight and management fees. However, net branch mortgage brokers are subject to local jurisdictional laws and the regulations governing lending and licensing.
The specific details of a mortgage net branch agreement will vary depending on the brand, but there are specific loosely defined structures and services that are common across all. Net branches can originate loans and sometimes in multiple jurisdictions; these include so-called high volume areas, but the parent company needs to be licensed in the area.
Generally, the net branch will pay a flat fee to the parent company for each loan file submitted, but that’s contingent on a particular volume requirement being met every month. The timing and the payment methods used for commission payments to the branch loan originators will be part of the net branching agreement. However, the lenders and loan programs net branches can access are significant factors for any mortgage broker considering accepting a net branch opportunity.
In most instances, mortgage net branch operations are launched by a home loan professional or a team of professionals with a great deal of experience who want to grow their business under an existing license of a known brand.
Many companies like Mortgage Right that offer net branch opportunities also provide extensive training to everyone manning the branches. However, new offices should preferably be operated by professionals who have a demonstrable ability to generate leads and close them. In addition, employees working for a net branch, or loan officers as they are called, also need to possess a sound understanding of lending practices; plus, they are subject to individual registration or licensing regulations in every state where a mortgage originates.
The most essential part of any net branch agreement is the overall quality of the compliance assistance offered by the parent company. However, the rules for each net branch structure tend to vary mainly based on jurisdiction and could, in some cases, pose a significant risk to originators, the parent company, and branch operators if not considered.
Net branches are strongly advised to draft contracts that articulate the responsibilities and rights of all parties involved regarding accounting, banking arrangements, office logistics, overhead, and equipment, amongst others. Fortunately, lenders like MortgageRight, who actively seek net branches, have an established compliance department that takes care of every detail. Their job is to ensure that irregularities are identified and addressed before becoming a liability. That is why it is so important for people considering net branch opportunities to work under the license of established and reputed brands.
The Advantages of Net Branch Mortgages
Today, there are various advantages of starting a net branch, and most experienced loan officers can take advantage of the fact that it frees them to do what they do best, i.e., close sales and help clients.
Generally, a loan officer has a broad scope of work. Often, they wear many hats at a lending institution, one of which is knowing local rules and regulations for various mortgage programs. In addition, they also need to understand how to qualify potential borrowers. Loan offices must also read credit reports and understand what each one means.
Many times, a mortgage officer will also end up reading tax returns to figure out how much the client is earning. This is especially important for officers who are dealing with self-employed borrowers.
It is also worth mentioning that even the most experienced loan officer may not be able to make much money if they can’t market themselves. Unfortunately, that is where many fall short. Naturally-born leaders will often be ahead of everyone else, but what if you are not?
Starting and running a net branch means you don’t have to be an expert marketer since the parent company has an established reputation. That leaves the loan officer to do what they do best, i.e., evaluating and closing mortgage requests.
Earn and Keep 100% Commission
One of the significant advantages of managing a net branch is that you can earn a 100% commission. Also, if the net branch owner or operator chooses to hire loan originators, a commission agreement can be based mainly on the originator’s production. This can be anywhere from 70% or even more, depending on the amount the originator produced.
The other reason loan officers may enjoy working in a net branch is that the lenders they are working for provide a broad enough scope of services, which means they can use to maximize their potential. Most net branches quite obviously want higher closing rates and that translates to more commission. It also means meeting the parent company’s monthly quota.
What To Watch Out for When Considering A Net Branch?
As someone getting ready or considering diving into net branch mortgage, it is worth doing your research. For starters, since you will be banking on the parent company’s brand image and reputation, you need to ensure how good it is where you want to set up operations.
You will also want to ensure that the company you are about to enter into an agreement with has a streamlined process. Many times, people can get involved with companies that prolong mandatory paperwork, and the longer that takes, the more money your net branch will be hemorrhaging.
You will also want to represent a brand that offers multiple mortgage products and services. That way, you can maximize sales or conversions, whichever may be the case.
Now, if you want to start a branch or net branch relationship and want something long-term, the agreement will obviously have to last a couple of months. This will help you look at the current legal aspect of the engagement, ensuring that everything is completed per present laws.
It is worth mentioning that not every branch operation is the same. US law mainly governs these types of relationships; if you are found as part of an illegal one, your business could receive a sanction. However, all states have varying statutes which govern how a net branch operates, which is why they should be well understood. Some have laws; others state that net branching is only legal, with some states having no statutes for this setup.
The best thing for anyone who is considering setting up a net branch is to speak with an attorney. Getting an experienced attorney to represent you during the due diligence process and later onboarding process can save you from a great deal of potential hurt later on.
Reputation Of the Parent Company
You also need to consider the reputation of the parent company with which you are about to enter into an agreement with. It is worth pointing out that most people seeking a mortgage loan don’t dig deep enough into every net branch deal since they tie both entities together. However, it is worth saying that some businesses have developed a bad reputation, with some lenders, regulators, and customers engaging in incorrect practices. This reputation could hurt your business if you are not aware of it.
That’s why before signing an agreement, it is worth taking the time to learn more about the business in question to ensure that you are dealing with a reputed entity. This step will ensure that you don’t start off on the wrong foot, so to speak, with a tarnished reputation inherited from the parent company.
You are expected to undertake lots of due diligence before signing any mortgage net branch agreement. The lending company will also want to assess the type of products that the net branch will offer. If the products are not competitive with what the main business or parent company provides, that can result in a loss of business.
The goal for you should be to come up with a win-win situation that works for everyone and leaves everyone feeling happy. Net branches can be very good agreements that allow a newbie business venture to start making money, in some cases, right away. But your due diligence is an essential part of the process.
Who Are the Best Candidates For Net Branch Mortgage Businesses?
We alluded to this earlier, but the best candidates to set up net branch mortgages are those who have a history of being high producers. Usually, top-producing officers are people who have proven they can bring in lots of money for their firms, but because they only end up with a fraction of that profit a net branch is the next evolutionary step for them.
The same goes for a team that works and has proven to operate successfully in a bank or maybe for a mortgage firm. The team desires to stay united, making net branch mortgages ideal since it allows them to remain united. This will mean they will now have much higher sales, make more money and grow a business without worrying about the parent company’s reputation.
Net branches are also an excellent opportunity for existing mortgage agency agents who aspire to have a multi-state FHA/VA licensing but don’t want to foot the costs and risk the setbacks involved in the process. Most parent companies like Mortgage Right have nationwide licensing, supporting branch operations, essentially helping net branches operate in multiple states they may otherwise not have access to.
All of this helps to streamline the services of a net branch. The license is often costly, while the conditions in many states can be rigorous. That is why this is something that small mortgage offices find near impossible to afford. A franchise means that the net branch has both economic support to expand and the required licenses, which aid them in working across multiple markets efficiently.
Steps To Starting A New Net Branch
Now, if you have worked as a loan officer and are considering pursuing a career in the P and L mortgage net branch, it is worth starting by weighing the pros and cons of the operation. Being a net branch owner is much like owning a full-time business or a franchise. You start by entering into a net branch agreement (as mentioned in the previous section) with a big brand like MortgageRight. This is usually done by getting in touch with the brand’s corporate office.
Most if not all mortgage companies have a minimum production requirement for you and the group of loan officers that you hire or bring with you. The minimum average requirement is around $5 million a month in production. Each loan officer can be assigned a goal that contributes to the larger net branch’s goal.
At MortgageRight, for instance, our goals are realistic, and we give net branches the opportunity to establish themselves in the market. However, many talented net branch operators often don’t require any sort of concession because they often get off to a flying start working based on their experience with the motivation of being able to keep a more significant chunk of the profits.
Production Stipulations To Start A Mortgage Net Branch
The vast majority of mortgage companies you sign up with have a minimum production requirement whereby they will want to see how much you make in the way of commissions, tax returns, and W2s, at least for the past two years. Some may want to go back even further. Plus, as mentioned earlier, they will want to see that you produce at least $5 million a month. Sure, some may require less, but then there are those that also require a higher production.
The reason there are production requirements is that the parent company sees itself as taking on a risk by opening a net branch. In the event of any violations committed by the net branch, the parent company is automatically responsible and will bear the consequences. People with a history of compliance violations and other regulatory issues have a hard time trying to get a company to sponsor them. The parent company often wants to see that the risks of allowing you to start a net branch are worth the rewards.
How Much Does It Cost?
Cost is obviously a concern for any business owner, with opening a net branch being no different. The advantage of a net branch is that opening one does not cost a lot of money compared to starting other types of franchises. Legally mortgage companies aren’t allowed to charge a franchise fee from those opening net branches or a new mortgage net branch. But the parent company or a brand, in this case, will want to see solid proof that the net branch manager and owner have the capability to produce the bare minimum each month.
Prior production numbers are significant because it allows mortgage companies to identify potential future monthly production before the net branch starts operating. Also, mortgage companies ask for commission runs and will require timely submission of pipeline reports from previous years.
The above requirements mean entering the industry and opening a net branch is impossible without proving industry experience. This raises the bar significantly, but at the same time, it ensures that the end client benefits from the experience of the mortgage company and its net branch.
How Profitable Can A Mortgage Net Branch Be?
As mentioned earlier, the costs involved with starting a net branch are affordable. Many loan officers have one-person or two-person broker shops, but you can have ones that employ fifty or more. Any costs that the corporate mortgage company incurs are going to be account receivable for the branch, and that will be taken out of future earnings.
In the past couple of years, many mortgage brokers have converted their broker shops into new net branches. One reason they are doing this is that the costs associated with the process are minimal, but the gains are potentially higher. Everything just switched to the new corporate name or the parent company’s name. The parent company will renegotiate the new mortgage lease. So, all vendors are left to do is adopt the name and branding of the parent mortgage lender.
The new mortgage net branch will now be responsible for payroll, rent, bills, and other expenses. Also, you can’t have any bills billed in your name or the name of any other business. So, everything is in the name of the parent mortgage company.
The P&L of A Mortgage Net Branch
The vast majority of net branches are on what’s called profit and loss platforms. What this means is that the net branch and the parent company have a compensation arrangement for every file that you close. The loan officer gets their money from the commission, as per the agreed-upon compensation plan. Using the remainder, other expenses like rent, electricity, and other bills are paid. A certain amount is then set aside as a reserve. Usually, this will be around 10% of revenue. The branch manager typically receives a salary, which is part of the payroll, and that gets deducted from the total net branch’s commissions.
The Right Net Branch
Once you open a net branch, the next step is choosing the right mortgage company. This, as mentioned earlier, can sometimes mean the difference between success and failure.
As a professional, you will want to decide on a few things, some based on experience, but others based on facts from research. Here are a few things you should start by considering:
- Do you want to have a purchase or a refinancing shop?
- If you are going to deal mainly with refinances, then the rates offered have to be competitive, which you will only know by comparing parent companies.
- Many mortgage companies will have purchased shops with unusually high rates, but with it come great compensation plans. However, this approach can devastate your business if the pricing isn’t competitive enough. That’s because people shopping for a mortgage don’t care about your comp plans!
- The next thing you will want to consider is if the mortgage company has overlays, and if they do, then what are their primary overlays.
- Do they have limits on collection balances?
- Credit scores
- Do they have debt to income overlays
- Do you have the power to broker out deals?
- Will the parent mortgage company allow for a broker wholesale type relationship?
- Many parent mortgage companies want the net branch to push their mortgage products and are thus very resistant to any correspondent lending. But this is something you will need to ask them about before signing an agreement.
Find out About Compliance and Licensing Mandates
Before you enter any business, including opening a net branch, you must familiarize yourself with the state’s licensing requirements. You will also want to have an understanding of compliance needs before signing an agreement to open a net branch.
- Mainly based on your business model, being able to access many states or have access to certain stats can influence your specific business model.
- Some lenders may be licensed in all 50 US states, but others are licensed in just a handful of them.
- The other important factor to consider for new mortgage net branch managers is that because a business is licensed in all 50 states does not automatically mean that you can or are eligible to be licensed in any of these states.
- Your branch will have to be licensed in the state that your loan officer or you apply for state licensing. Then you can only operate in the state your net branch is licensed.
- Keep in mind that this isn’t just about paying a branch licensing fees, but instead, it is about the amount of time it may take for the state to approve your license. For instance, you can apply for a branch license in California, which will cost you just $20. But it takes over four months to get approved. That means if you have borrowers in the state and you have just signed up with the parent company, and you are relying on doing business in the state, the extensive wait will undoubtedly be a significant issue. So, you will need to plan ahead when it comes to state licensing.
What Are The Drawbacks of Net Branch Mortgage?
Like everything else in life, there are upsides, and then there are a few downsides you need to be aware of before jumping in. The net mortgage industry is no different.
In this section, we’ll examine some drawbacks of the net mortgage industry. While we did touch upon a few in the previous area, here are a few more major ones you need to watch out for before diving in.
Give Up Your Identity
Many branch networks will require that people who open up net branches give up their identity almost entirely and adopt a singular corporate identity. However, there are also those that are depending on you leveraging your local brand value while sneaking in their own tactics, something that is used by real estate companies. Should you consider these drawbacks?
Many who want to open a net branch may not consider these drawbacks. However, it does not mean that you shouldn’t be in the ‘know’ about them and evaluate all the opportunities out there.
Here is what you might want to look out for:
- Mortgage companies want the net branch to fund most of the loans they approve. If you see this as a problem, having a net branch may not be a good idea.
- You will also want to beware of net mortgage companies that have been in business for only a short time. These companies may not necessarily have a tarnished reputation, but their inexperience could hurt you in more ways than we can predict.
- You should also beware of mortgage companies accepting net branches without quality requirements. The fact is that a business is only as strong as the weakest link, so there is nothing to substitute for the quality of an affiliated branch and its loans.
- This is another red flag if the company does not want you to contact their branch managers. The most important part of your due diligence process is to contact other branch managers. We strongly advise that you speak with at least three branch managers and that too from different markets. This will give you an excellent idea of what to expect when you finally ink the deal.
- Usually, when a deal sounds way too good to be true, it is time to stop and do your research. Many branching companies enter the market with various corporate fee splits, which appear to be earning minor profits at best. However, because of that, they are now going out of business, or if not now, maybe later. Research the business model because you don’t want to use one proven to fail.
- You will also want to ask if deals can be originated using another branch’s corporate or branch license. Generally, these are not allowed for regulatory reasons, yet companies will allow them in practice. The fact is that with a business that allows this, there is the risk that all net branches will be affected if caught. This happens because branching companies don’t want to set strict rules for fear of scaring everyone away and losing deals or their branch to a competing mortgage company. That said, this is a significant risk and one you should steer clear of.
All complex decisions involve an understanding of a complicated issue or issue. In fact, we urge anyone who needs to decide if they want to get into mortgage net branching to strongly consider the complexities involved.
Few decisions will be more complex or even important for an independent originator because it involves the welfare of their families and the stability of their income. Fortunately, most net branch businesses are smart about the complexities; they often employ a business model and environment that fits both the local culture and works great for the business.
The other thing to consider is the incentives offered by mortgage companies. Some of these may be rewards for productive branches; others may provide stock options. However, it would help if you weighed these complexities with operating the net branch. Sometimes stock options may be a better option than an annual incentive, and other times it may be the other way around.
The other bit to look out for is the increasing role of technology in the mortgage industry. Like any other industry, technology has become a significant part of the lending industry. Now unlike in the past, paper is the enemy, and thus technologies are being adopted to reduce the reliance on paper.
Speaking of technology, it is also worth mentioning e-mortgages, which are little different from what conventional mortgage officers may be familiar with. Yet, they are paperless, electronic, and can easily be accessed by multiple people simultaneously. Also, this will soon become the mainstay.
A lot more technology is also being applied to customer relationship management, CRM, etc., to help customers remember the lender and, more importantly, the brand. Predictive marketing is being used and is increasingly becoming a significant part of the mortgage industry. Lenders are already using CRMs to trigger communications and make offers while using predictive models to determine risk. This is meant to make net branches and mortgage companies more efficient.
Becoming a net branch is a life-changing decision. It will, as it has for many people, rock your world. However, you will find safety in numbers as an increasing number of experienced mortgage officers are dipping their toes into this industry. However, it is worth mentioning again that doing your research is essential before committing to transforming your business into a net branch. You shouldn’t expect miracles; there is now a lot more you can do to produce more and help your team be more productive too. After all, you are expected to meet the minimum monthly threshold you signed up for earlier.
Mortgage Right Works With Net Branches
At Mortgage Right, we believe in working as a team with net branches. That often means custom tailoring something that works best for them, their market, and their team. Our goal is to provide net branches with everything they need to deliver on their full potential. However, we also understand the importance of being realistic. That’s why we have become one of the leading mortgage lenders in the United States.
Our model is built by producers who have been in the trenches for producers who need to go out and produce. That’s why nobody knows more than we do about mortgages and, more importantly, what it takes to deliver a comprehensive experience to clients.
At Mortgage Right, we offer the lowest rates in the industry, a quick underwriting process, same-day clear to close, and a full suite of support tools. We do all this and more to ensure your teams can continue producing efficiently. Unlike other companies, we don’t just see you as a net branch but as partners who are part of our success. Your success is our success, which is why we need you to be successful.
Final Word About Mortgage Net Branch Opportunities
A mortgage net branch may be the evolutionary step you are looking for after years of successfully operating as a loan officer or a mortgage broker. Starting a net branch can be highly profitable and rewarding at the same time. However, it is essential that you do your due diligence and take every step needed to choose the right company. The company should have policies and mortgage products that you and your loan officers will be comfortable with selling.
Many net branches start with the assumption that partnering with the biggest name in the industry will yield success. In reality, that is not the case. Sure, the brand you team up with matters, their reputation matters, and so do their mortgage products. However, it is just as important as if they have a good reputation and competitive prices. At the end of the day, most people looking for a mortgage want to know how you can help them save money. Often they compare mortgages from different lenders, so your quotes need to be competitive.
Finally, take the time to do your research. At Mortgage Right, we offer our net branch mortgage brokers transparency. Everything from the process to the compensation they can expect is in black and white. Plus, we set realistic expectations. While the sky is the limit to how much your mortgage net branch can earn, we like to start with being realistic based on present marketing conditions.
If you have a question about starting a net branch or our net branch opportunities, please get in touch with us today.
Frequently Asked Questions
Q. How can I open a net branch mortgage company?
A. The process of opening one will vary depending on the parent company’s policies. Generally, you will need to prove that you and your team have the experience required to produce the minimum monthly threshold. On average, the threshold is around $5 million a month. However, some companies may have higher thresholds. Plus, you will need to prove your ability to produce; this will require presenting tax documents, bank statements, and other types of paperwork as proof to the parent company you want to join.
Q. How soon can I open a net branch?
A. The average time it takes is around two months. However, a lot depends on your state and the licensing requirements. Some states like California can take up to four months to approve your license. That said, at Mortgage Right, we make sure that our net branch partners can open and start operating ASAP.
Q. What does it cost to open a net branch?
A. The costs involved are minimal. Unlike opening a net branch for a real estate company, the costs involved are a few thousand dollars at best. The rent, utilities, and payroll expenses will vary depending on where you want to set up shop. Other than that, mortgage companies can’t and don’t charge business owners who aspire to become net branch managers a fee. That is why you can be assured that opening a net branch is financially viable in most cases. That is another reason why mortgage companies vet prospective operators closely because the barrier to entry is very low financially but the risks are high.