How to Survive Starting An Independent Mortgage Branch!

 

Philadelphia, PA – The mortgage industry is in a constant state of rapid evolution. Perhaps the most dynamic development in the 1990’s was the emergence of what used to be called the “Net Branch” concept.

 

     An independent mortgage branch (IMB) is a corporate branch office of a mortgage banking firm. The branch manager operates the branch office with oversight and a large amount of responsibility for both the operating expenses and the staff supervision. Some branch offices are one-person operations while others are fully staffed, production offices employing dozens.

 

   There are three. A strong candidate is a top-producing originator who is weary of bringing in huge profits for another firm only to take his/her 35-75% on payday. Another ideal candidate is the team that already works together successfully in a bank or mortgage company office and wants to stay together but have more potential for sales, profits and business income. And also ideal is an existing mortgage broker firm (or net branch office) that wants to obtain multi-state and FHA/VA licensing without the burdensome expense and delays involved in doing so for itself.

 

    No. There are now over 200 mortgage bankers in this business at some level and each program varies widely. Some will permit a branch manager to broker his/her own loans anywhere they want; some won’t. Some pay 100% commission; some split. Some are banker/brokers while many are only brokers. Very few equip and enable their branches to do business nationwide without extra fees, licenses, and/or reduced profits and requirements to put loans through an “in-house” branch. Making a wise choice can be tricky. Making a bad one can be disastrous.

 

   Since the branch manager is operating a branch of a mortgage-banking firm, one of the chief benefits is that the yield-spread premiums are not required to be disclosed.         FHA & VA mortgages will account for a growing percentage of mortgage loan volume as more and more sub-prime products disappear every week. Approval to do those types of loans is expensive, difficult and time-consuming to obtain. In an IMB the branch manager has those licenses on day one. If your IMB is a federally-chartered bank (very few are) then you have the additional and powerful advantage of being able to do business nationwide, with almost instant-on, immediate start-up capability without having to wait for expensive licenses in individual states. The last big reason is that most IMB managers would prefer to concentrate on originating (and usually hate paperwork). A good IMB company will not only execute mundane items, like payroll and accounting but will also handle compliance and regulatory obligations (audits, etc.) as much as possible, thus freeing the branch manager to do what he/she does best…originate!

 

    If an IMB-corporate entity doesn’t offer competitive programs to its branches, managers will end up brokering (if they’re allowed to) out most of their loans. This defeats the purpose of becoming a mortgage banker and re-instates the requirement to disclose yield spread premiums.

 There are a number of new companies in this business. Accounting systems typically hit a meltdown and rebuild stage at a certain level of growth. If a company hasn’t been in the business more than a few years, or hasn’t grown beyond a certain scale/size, it’s virtually certain they haven’t yet reached and survived this event. Many branch offices die when this happens, as it invariably will. Another consideration is the transition time necessary to make the switch. Most IMBs will not apply for your state license until you have “signed on the dotted line” and then the clock begins on waiting for a state regulatory agency to receive, review, investigate and (hopefully) approve your license…THEN, the process (and fees) has to be repeated for each state in which you wish to operate

 

    Good question…with many answers. Some such companies want anywhere from $500 to several thousand dollars. A quality IMB-system will not ask you for any fees other than pass-through fees (e.g. HUD branch fee, etc.). If any of these companies charge you any kind of up-front fee to obtain a branch – run; don’t walk away from those guys.

 You will want a company that’s going to save you money and make you money. The only way a true IMB-system should make money is when you do…you should not be a retail profit center for them.

 A smart operator will have (or quickly accumulate in the first weeks/months of operation) a reserve account (rent, phones, utilities, etc.) just to be prudent.

 

    That’s the $64,000 question. The answer is to ask a lot of questions. Many companies are easy to get onboard with while the top ones aren’t nearly so willing to sign just anyone up. If they don’t require a criminal background check, be suspicious. If they don’t call and question your references or require a minimum experience level, it should send up red flags. Remember you won’t be their only branch. If another branch is operated by a branch manager who isn’t up to ethical or professional snuff, the resulting ill will and potentially bad publicity could spill over onto you.

 One of the most important factors is ongoing support. If the company doesn’t bother to put an experienced and helpful individual (or better yet, team) at your disposal to troubleshoot problems and help you with marketing programs, they may not be as top notch as their brochure wants you to think. Make sure you have adequate support.

 

    Fair question. The biggest one is probably choosing a company that isn’t experienced enough and doesn’t have adequate systems in place (accounting, support staff, etc.) to accommodate growth. Many of them only have two things: a mortgage banker’s license and an advertising budget (website).                 

 

    The second one is finding out too late about restrictive operational limits that were never disclosed (except maybe in the fine print of a 40 page employment agreement) and that would have made a big difference in the final decision (see the next question for more)…

 

 

Becoming a part of a branch networking system can be rewarding and an almost unbelievably profitable way to succeed in the mortgage industry today… proceed with caution, but by all means proceed! Good luck!

 

Author:

Patrick J. McNally is formerly CEO of American Federal Mortgage.

Sheila Morelli welcomes confidential inquiries from qualified mortgage professionals during office hours (Central time) at (866-587-3345)or click here to email us. Thank you!