NET BRANCH OPPORTUNITIES - Questions You Must Ask First Before Joining a Net Branch Opportunity.
What you must ask any net branch mortgage company!
1. WHAT IS A NET BRANCH OPPORTUNITY?
In an industry where guideline compliance is so heavily scrutinized, it is vitally important to make sure that the net branch partner you choose is operating in accordance to HUD guidelines. There are both acceptable and unacceptable ways to conduct a net branch business, so it's important to understand the differences between the two. We have observed many companies operating outside of HUD guidelines, and we caution anyone against partnering with a company who is either blatantly disregarding HUD guidelines or who is just unaware of the rules.
*HUD defines an acceptable net branch structure as:
"...a net branch arrangement is one wherein the branch manager's compensation is based upon the "net" profit of the branch. The HUD/FHA approved mortgagee collects the revenue from the branch, pays the branch expenses, and then pays the branch manager the remaining revenues, if any, as a commission. Such an arrangement is, essentially, an alternative compensation program for the branch manager and is an acceptable branch arrangement if all other branch requirements are met.
What are ‘other branch requirements'? Here are just a few of the requirements of the Net Branch relationship per HUD.
A Company is required to-
• ...Pay all of its operating expenses including the compensation of all employees of its main and branch offices. Other operating expenses that must be paid by the HUD/FHA approved mortgagee include, but are not limited to, equipment, furniture, office rent, and other similar expenses incurred in operating a mortgage lending business.
A Company must not -
• Require all contractual relationships with vendors such as leases, telephones, utilities, and advertising to be in the name of the "employee" (branch) and not in the name of the HUD/FHA approved mortgagee.
• Require the "employee" (branch) to issue a personal check to cover operating expenses if funds are not available from an operating account.
• Require the "employee" (branch) to indemnify the HUD/FHA approved mortgagee if it incurs damages from any apparent, express, or implied agency representation by or through the "employee's" (branch's) actions.
*(Source: HUD Mortgagee Letter 00-15)
2. HOW CAN I COMPARE DIFFERING LEVELS OF NET BRANCH SUPPORT?
When comparing various support levels, it is important to remember that support is one of the easiest claims to make, yet one of the most difficult and expensive to deliver. The key to comparing radically different levels of support lies in asking the right questions. The questions in this special report were developed with this challenge in mind. Create a spreadsheet and make notes about what each company offers for easy comparison later.
3. DO YOU OFFER A HIGH LEVEL OF NET BRANCH SUPPORT?
Since lack of support is the primary complaint of most net branch managers and originators, and the main reason people switch from company to company, it's important to discover upfront how strong of a support system you are getting for your money. Look for services that are designed around you, your team, and the support that is required to grow a successful net branch mortgage business. You should be assigned to a responsive in-house support team and have constant access to a branch support hotline.
4. WHICH PAY PLAN IS BEST FOR ME?
Smoke and mirrors can make certain compensation packages look more attractive than others, so let's try to remove those advertising distractions and marketing gymnastics to get to the bottom of this very important issue.
It is important to discover how the corporate entity makes its money as well as their motivations to make money - Is it to grow your branch or to grow many more branches like yours? Let's take a look at the two most common net branch compensation structures:
FLAT FEE PER MONTH V/S FLAT FEE PER FILE
It's important to keep in mind the motivations of your business partner. Do they benefit or profit when you are making money, or when you aren't? And are they motivated to support you? In order for you to be successful, your interests must be perfectly aligned with those of your business partner. This means that the company must be incentivized to do all it can to ensure your success. Ask yourself these very important questions:
Does the Company Make More Money When You Do?
Is the Company motivated to support branches that perform well?
Does Additional Revenue give the company incentive to ramp up critical support?
Is the company motivated to help you stay in business?
Do State Regulators Support the overall structure?
Can the Company grow without reducing critical overhead, such as training and support, and without passing administrative functions down to branch managers?
Is the Company motivated to help you reach your goals?
Is the Company motivated to help you maximize your total revenue?
Is it likely that the company will either increase fees or cut commissions to support infrastructure?
Does the company's profit increase when you sell another loan?
As you can see from the questions above, Flat Fee Per Month programs represent the worst overall value for loan originators and branch managers. It appears that the primary goal of companies which offer flat fee per month programs are to set up as many shops as possible and plan for a high degree of turnover. Furthermore, they are financially motivated to decrease critical support, training, and technology offerings, as these are viewed as expendable overhead.
If the company is receiving a flat fee per month, then they have a very low motivation to support you, and they will be less likely to help you reach your next level. In fact, as you produce more, you become a greater cost to them!
On the other hand, Flat Fee Per File structures perfectly align the interests of the company with its branches and partners. Most companies which utilize flat monthly fees often find that they have to increase their fees in order to keep up with rising overhead, which means even less money to you.
5. How can the company really pay me 100%?
First, let's examine what "100%" really is. Most companies that claim a 100% payout make up for this by charging junk fees (once you've signed on, of course).
On an average loan, the difference between 90% and 100% is just one junk fee of $355! Throw a few more junk fees in there, and now you're right back where you started. Our experience has shown that companies which claim to pay 100% employ an average of 3 of the following junk fees:
Training Fee
Conference Fee
Overhead Fee
Technology Fee
Registration Fee
Loan Servicing Fee
Warehouse Fee
Help Desk Fee
Processing Fee
Marketing Fee
Compliance Fee
Branch Activation Fee
Min. Balance Fee
Fees Observed
Inactivity Fee
Set Up Fee
Administrative Fee
Closed File Fee
Annual Conference Fee
Fees Involved
Countless Others...
They are making their money somewhere...find out where! Would you rather partner with a company who attempted to lure you in with an unrealistic commission split, or with one who put all the cards on the table? Look for a company that is seeking long-term relationships - not short-term profits.
6. HOW WILL I BE PAID?
On Time! This is the most important attribute of a net branch opportunity, so it should be the most important to the company you choose. Look for fast payouts and consistent payments. Make sure the company hasn't missed any payrolls (big sign of trouble with net branch mortgage companies). As long as the necessary funds are in your branch account, you should retain the ability to decide how funds are dispersed to yourself and your staff.
7. DO YOU OFFER A FULL BENEFITS PACKAGE?
It is critical to select a net branch company that is focused on your health and longevity as well as your continued success. Look for a net branch company that offers group health insurance (this is also a huge recruiting tool as well, as your future prospective employees may have pre-existing conditions).
8. HOW CAN I TELL WHO HAS THE MOST COMPETITIVE PRICING AND THE BEST INTEREST RATES?
First, you must determine how the corporate entity makes its money. Generally, the companies that advertise a 100% payout will require you to use their own padded internal rate sheet. This is good news for the company and bad news for you, as this structure yields more revenue to the company while putting you at a competitive disadvantage since you are forced to sell their higher rates and lower yield spreads.
If an internal product line is a major component of a company's offerings, or if a 100% payout is advertised, then you should thoroughly investigate its competitiveness. This is yet another area where the smoke and mirrors of 100% payout are meant to confuse you. Make sure the rates that the company receives are the same rates you sell - otherwise, you will have a hard time competing for loans. Look for a net mortgage branch company who is set up with almost every premium wholesale investor, and, hopefully one that receives premium pricing due to their high volume.
9. WHICH INVESTORS/LENDERS ARE YOU SET UP WITH?
"More" in a list of investors isn't necessarily "better"! Look for a company that has a solid relationship with a few investors instead of a marginal relationship with hundreds of investors. Pricing, turn-times, and preferred rates are dependent upon these factors!
10. CAN I ORIGINATE FHA, VA, Reverse, AND RURAL DEVELOPMENT LOANS?
With the sub-prime market in the tanks, FHA is back to being THE sub-prime loan. You should be able to originate FHA, VA and Rural Development loans. Also, make sure they have some Reverse loan investors, and if needed, they should be able to show you how to originate these loans via unlimited government loan training.
11. IS AN INTERNAL LENDING LINE MORE ADVANTAGEOUS TO ME?
Internal lending lines usually represent a lower value proposition for the branch managers and loan originators. Although they represent a greater profit structure for the company, the higher pricing usually puts the managers and originators at a competitive disadvantage. Generally, companies that have internal lines charge fees to discourage the use of an outside lender. This means that you will be either forced to sell at a higher rate and make less money, or you will be penalized for offering your clients the best rates on the market. We recommend joining a company who is primarily broker-oriented.
12. IS IN-HOUSE PROCESSING BETTER THAN CENTRALIZED PROCESSING?
Strong in-house processing support is the key to a successful mortgage operation, and our experience has shown that a centralized or outsourced processing center is the worst possible structure in maintaining a smoothly running mortgage shop due to de-specialized relationships, increased distance, and more confined communications. While this as a responsibility of the branch, look for a company who supports you in finding, recruiting, and retaining a competent processing department.
13. HOW DOES COMPLIANCE AFFECT ME?
Everyone, even loan officers, can be subject to criminal and civil penalties for non-compliance on any mortgage loan. This is why it is so important to choose a partner who places the highest value on compliance, and who keeps loan officers up to date on the ever changing world of compliance.
In an average sized mortgage shop, this is easily a full time job for one to two people. The complexity of understanding state and federal guidelines for conforming in government products is a constantly moving target, not to mention the communication and training necessary for all employees every time there is a change. When shopping for a net branch partner, it is important to discover whether or not the company has the resources and the motivation to constantly produce the most up to date compliance how-to guides.
14. SHOULD I HAVE TO PAY ANY UPFRONT FEES?
No, a net branch operation falls under the responsibility of the corporate entity and, per HUD guidelines, must be a true satellite office of the corporation. Any net branching company which attempts to charge you upfront fees may be violating HUD guidelines, and therefore we recommend that you avoid any company which asks you to pay money upfront (excluding license and general hiring fees such as background checks and credit report). A net branch operation is an employment arrangement, and legal arrangements don't require upfront fees.
15. HOW LONG DOES IT TAKE TO GET SET UP?
Setup should only take at most one week (licensing will be a bit longer). Depending on your situation, it could be faster or slower. The company should have a designee to work with you to get you everything you need, as you need it. You should receive everything you need from licensing to training manuals on how to submit loans to our investors. This is where the branch hotline comes in very important - make sure they have one (and not just a receptionist - someone who knows loans, licensing, investors, etc).
16. DO YOU OFFER SALES/PRODUCT TRAINING?
Experience has shown that proper sales, product, and procedural training leads to a greater level of individual success and longevity. Although most companies claim to have a training program of some sort, or none at all, we encourage you to examine carefully exactly what a training program will look like once you sign on.
Look for a net branch partner that offers training on demand, training via web conferencing, and an entire library of sales and product training. Equally important is Mortgage 101 Training for Junior LO's, continuing education for senior LO's and managers, and training (both basic and advanced) for processors and assistants.
17. WILL YOU HELP ME RECRUIT?
This is a core function of the branch manager, but a strong support system helps everyone achieve your goals together. Look for a partner that offers pre-written ads, employment handbooks, brochures, and access to online career sites to help you staff your branch.
18. WHAT TYPE OF TECHNOLOGY DO YOU PROVIDE?
When choosing a net branch partner, we encourage you to fully investigate ‘technology' claims. Technology is an expensive offering and represents a major expense for the company. This expense is usually passed on to the branch in the form of additional monthly fees.
Look for a partner with NO hidden fees and a wide range of technology offerings. This helps you grow your business to new levels. Partner with a net branch company who works closely with their third parties to help customize the tools and support that their partners receive. Below is a short list of the technology that should be provided:
WEBSITE SUPPORT
WEB-BASED EMAIL
MOBILE DEVICE SYNCHING
ONLINE LOAN STATUS
DOCUMENT IMAGING
PAPERLESS PROCESSING
TECH SUPPORT HOTLINE
LOS SUPPORT
AUTOMATED UNDERWRITING
CENTRALIZED LOS
FULLY LOADED INTRANET
E-FAX
19. WHAT ARE THE MINIMUM REQUIREMENTS FOR MY COMPUTER ON YOUR SYSTEM?
Due to most companies high technology system, there will probably be a few requirements for computers brought into the company IT infrastructure. Don't worry if you don't know if yours qualifies or not - their IT helpline (if they have one) should be ready to assist you with your technological needs.
20. DO YOU PROVIDE MARKETING MATERIALS?
We believe that marketing and advertising are critical support functions of any net branch operation.
Look for a company which offers a robust marketing library, complete with marketing campaigns, customizable flyers and brochures, bios, and valuable information for customers ... and, they should be prepared (and willing) to show you how to use it! Also - ask them if they assist you with any custom campaigns that you would like to create.
Here are just a few examples of full campaigns and direct mail pieces that should already be designed to help you reach your target market.
FOR SALE BY OWNER
FIRST TIME HOME BUYER
ARM REFINANCE
NEW HOME BUYER
CASH-OUT REFINANCE
HOME EQUITY
CREDIT REPAIR
REALTORS/BUILDERS
FREE REPORT
They should also have pre-written seminars ready to go, which include flyers, brochures, hand-outs, and pre-qual forms.
21. DO YOU OFFER FREE LEADS?
Some companies advertise free leads and some don't. We strongly suggest you ‘test drive' this option before making your decision. The reality - this is more of a marketing ploy than a viable support function for your success. Leads range anywhere from $0.25 to over $150, depending on quality. "Free leads" are usually bulk leads from the lowest end of the quality spectrum which have been sold many times over before they eventually reach you. Conversion rates from company-sponsored programs are reported to be below 1%. This means you would have to work more than 100 leads to generate a loan! This is NOT a wise investment of your time.
22. CAN I OPEN MORE THAN ONE BRANCH LOCATION?
Although most companies have a restriction against operating more than one net branch, if certain conditions are met, some companies will allow you to continue to grow your business in order to give you unlimited profit potential.
23. WHO DETERMINES HOW MUCH TO PAY MY LOAN OFFICERS?
As the branch manager, you will most likely determine and set the compensation structure for your loan originators.
24. ARE THERE ANY PRODUCTION REQUIREMENTS?
25. ARE THERE ANY DISADVANTAGES TO NET BRANCHING?
There are a few perceived disadvantages. Let's explore them.
1. Loss of autonomy - Those who were already in business for themselves may worry that joining a net branch operation would result in a loss of autonomy. The company you select should understand this as an important trait of successful companies, and should place a high value on autonomy and empowerment.
2. Loss of identity - If you are considering any company who does not have the absolute highest reputation and integrity, this can certainly have a negative impact on your identity. By joining a strong net mortgage branch operation, you will be linked into what should be a respected name in all of the states in which it does business, and the good name of your business will benefit by your association with theirs (this is why it's important to do your homework first). You should expect to use a portion of your name behind theirs, in order to help maintain your identity.
3. Loss of tax write-offs - A good net branch operation will allow you to expense certain legitimate business-related expenses from your branch account before taking your W-2'd income. This allows you to remain in compliance with HUD guidelines as you fall under W-2 requirements, but also lets you keep as many write offs as possible.
FOR MORE HELPFUL INFORMATION ON HOW TO PICK THE BEST NET BRANCH OPPORTUNITIES, VISIT:
Net Branch Opportunities: http://www.netbranchsurvivalkit.com
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