There are conflicting definitions of what a net branch is.

HUD, various state legislative bodies, and the mortgage industry do not always agree on what a net branch is.

The big differences seem to be between the generic use of the term that is used throughout the mortgage industry and legislative bodies that have passed laws that at first glance seem to be against a net branch operation.

The generic term for net branch usually means that a branch manager’s compensation is determined by the (Net Profit) profitability of the branch office that they are managing. States have no law against this and HUD has specifically stated that this is a legitimate form of compensation.

The legislative definition that some States, and HUD have focused on details situations that are not legal.

• Paying originators and others working in the branch as 1099 contractors  instead of as W-2 employees of the company.
• The branch maintaining it’s own set of books and bank accounts instead of all monies being managed and dispersed by the parent company.
• Branch personnel and activities not being managed and supervised by the corporate office.
• Profits or income from the branch paid to an LLC or other entity instead of all compensation being paid by W-2 to to company employees.

The majority of companies that offer branch management opportunities today use the term “Net Branch” in the generic meaning and most follow all state and federal rules of operation.

For more information on our Net Branch Opportunity visit our FAQ or Contact Us pages.

One of the reasons is that current and pending legislation is making it harder for small independent mortgage shops to survive.

As our mortgage lending environment continues to change more mortgage lending professionals are switching to the net branch business model because of the ability become part of a much larger company and still have the flexibility manage their day as an entrepreneur.

New net worth requirements from HUD, higher E&O costs and requirements, higher employee costs, fewer loan programs, and fewer investors all make running a small independent shop more difficult and being part of a national company offering net branch opportunity more attractive.

The non origination costs for an independent mortgage office can be a huge drain on their budget.

By non origination costs I mean anything that is not directly related to generating business. Compliance, payroll, accounting, licensing, equipment, office space, etc. Its a long list of tasks and responsibilities.

Joining a larger company is a cost effective way to leverage these costs.  If the owner / manager handles all of these responsibilities they are taking time and energy away from loan production. Being part of a larger company that has a system in place for handling these administrative tasks frees up the managers time to focus on income producing – business development activities.

If you would  like to know more about our net branch partner program visit our Frequently Asked Questions page.

Net Branch Managers should full understand the new rules and how they may change the way you operate your branch and how you hire new loan officers.

Many loan originators under their current state banking laws do not need to be licensed. Some states have only required loan officers who are mortgage brokers to be individually license while loan officer working for mortgage lenders were exempt from individual licensing.

With the new NMLS everyone – brokers and lenders will be required to be individually licensed. If you have been originating in more than one state you will have to have a loan officers license for each state and your office will also have to be licensed to operate in each state.

If you are hiring new loan officers for your branch you need to review the new laws to make sure that the prospective originator will qualify under the new rules.

As a net branch manager your compliance department at your national headquarters should also be able to help you with these issues. That is one of the benefits to being part of a national company. You have a full service compliance department to assist you.

Do not wait for the new laws to go into effect before you understand how they could change the way to operate your mortgage branch.

Click Here to visit the NMLS website to look up the new requirements for your state.

I always welcome comments, questions, and subscribers!

If you would  like to know more about our net branch partner program visit our Frequently Asked Questions page.

Mortgage Net Branch Licensing Information

Should you hire more loan officers or is there a better way?

After becoming branch managers many successful loan officers try to duplicate themselves by hiring more loan officers. It is a logical step. But is it the right step?

The internal conversation usually goes something like this: “If I can hire 3 loan officers and make an override on their loan production, I can use that income to pay overhead and I can keep more of the origination income from my personal production.”

Sometimes this does work out as planned but many times branch managers find that managing loan officers takes up so much of their time that their personal production suffers. Helping with someone else’s clients, troubleshooting operations problems, trying to help with underwriting and other investor loan problems all take away from the managers personal productivity.

Then there is the successful loan officer that the branch manager mentored through the learning process only to have the producing originator leave to open their own branch office. Instead of being able to reap the rewards for mentoring a loan officer the branch manager now has created another competitor.

Is there an alternative?

I think we have lot to learn from successful Real Estate Agents. When an agent wants to increase their business many times they hire an assistant. The assistant helps with the non income producing tasks that come with more business. There is more follow up, more appointment setting, more calls and emails to make sure business is moving forward. By delegating these tasks to an assistant the agent has more time for core activities that generate income.

There area a number of benefits to hiring an assistant instead of hiring more loan officers.

An assistant’s focus is on you and your business not on growing their business.

An assistant’s income is fixed. It is either hourly or weekly you are not splitting fees.

The cost to benefit ratio is a good one. If an assistant can help you increase your productivity by 40% how much is that to you in net income?

An assistants work can have a synergistic effect on your production. synergy = “The interaction of two or more agents or forces so that their combined effect is greater than the sum of their individual effects.”

In plain English that means that more than one person focused on that same goals can produce higher results.

Hiring an assistant instead of hiring more loan officers could be a better answer.

If you find this information helpful please let me know. I always welcome suggestions, comments and new subscribers.
(To subscribe use the subscription button in the upper right of this page.)

A search for “net branch” on Yahoo lists 126,000,000 results. Most people do not go past the 1st 2-3 pages of results. With 10 results per page that 20 – 30 listing to review for information. That’s almost information overload. Granted a number of listing will not really be links to companies offering branch opportunities. Some will be news stories, general information, and a few will be site that have nothing to do with finding the best mortgage branch.

Even if you cut the number in half – that 10 – 20 companies to compare in order to make a good decision.

You should start wit a list of what are the primary features that are important to you.

Make a list. After each feature leave a space to grade the company from 1-5 on the feature, with 1 the worst, and 5 being the best.

You are not going to find a company that ranks high for all of the features that you want but with this method you are using a grading system for all of the companies that you talk to.

Also consider how they respond to your request.

• did they confirm your request for information?
• did they contact you quickly?
• did they answer all of your question honestly?
• were they evasive with any of your questions?
• did they follow up after the conversation?

In a previous posts – part 1 & part 2 I gave a list of the important questions you should ask. Please read it I think you might be surprised at the questions on the list. They are the ones most people do not ask.

The bottom line… do your homework and keep good notes for review.

Feel free to contact me if you have any questions.

Now let’s take a look at the next items on the list of important criteria you should consider if you are considering a net branch opportunity and intend to originate FHA loans.

• FHA originated using the corporate address or the branches?
• Corporate processing of FHA loans or at the branch?
• Level of the company’s experience with FHA?

Many companies offering net branch programs will let a branch originate conventional mortgages from the branch but they will require the net branch to send all FHA transaction to the corporate office for processing.

Why is this a problem?

There are several important issues that make this a practice you should be concerned about.

Control – the net branch has lost local control of their loan. The processing and placement is now in the control of someone who at best you have had phone conversations with. The borrower, real estate agent , and closing agent are now working with someone else or they are calling you for progress updates and you do not know. The loan is out of your control.

Compliance – when you put your name on the 1003 with an address that is not your branch address you are putting false information on the document. Some companies have lost their ability to originate FHA loan for putting false information on a 1003. A company that uses the centralized call center approval from HUD for FHA loans is stating to HUD that all FHA originating is done from that office. If you take the application (originate the loan) locally and then sent it to the call center for processing you are violating HUD law and could lose your license.

A key point to remember when you are looking for a net branch opportunity is that not all companies have done their homework when it come to compliance laws.

Some of this is due to lack of experience and some is due to a lack of concern for the rules.

You should always investigate the net branch companies experience level. This is even more important when you are going to originate FHA loans.

HUD does not always move swiftly to stop problem companies but they do catch them. When they do it either results in large fines and or loss of license.

Do your homework. Make sure you are really partnering with a net branch company with a proven track record with HUD (FHA / VA) loans.

For more information please visit: NetOriginator.com

If you find this information helpful please let me know. I always welcome suggestions, comments and new subscribers.
(To subscribe use the subscription button in the upper right of this page.)

Mortgage Net Branch -  Net Branch – Net Branch Opportunity

“What are your net branch fees and how long will it take to get approved?”

I speak to people everyday that are looking for a mortgage branch partnership. Many times the key questions are not asked.

The questions that I think are important to ask are:

1. Is your company HUD approved? – Also do they use the corporate address for all FHA loans or does each branch get HUD authority? In today’s market you have to have FHA! It should be a flag if you are told all FHA goes through the corporate office. There are several reasons why this is a problem. One is “Neighborhood Watch”. A centralized operation exposes the corporate address to potential company wide loss of HUD license. One of the other problems is that the address on the 1003 should reflect your real location.
2. If the company is HUD approved – how long have you been approved? – This is a very important question. A company that recently obtained their FHA approval is a novice in this area of lending. They are going to make errors that every novice makes. These errors could cost everyone in the company the ability to continue to close FHA loans.
3. Has your company ever been suspended or fined by HUD? The company’s track record with HUD is a good indication of their compliance knowledge and ability to manage their company.
4. Have any wholesale investors cut off or suspended your company in the last 24 months? – This is another great indicator of current and future problems. Suspensions or termination by wholesale investors tends to be viral. If it happened at one company it will happen at others. You do not want to work with a company that is losing wholesale investors due to audit and compliance errors.
5. How many branches do you have active? – Many companies have hundreds of branch offices and many cannot service the number of offices they have. This leads to high branch turnover. High turnover in any sales organization leads to problems.
6. Has your company had any buy back requests from investors? – How many buy back requests does it take to force a company to close their doors? Not many. If the average loan is $200,000 it only takes 5 to put the company $1,00,000.00 in debt.
7. How long has your company been in business? You might be surprised at the answers you get to this one. You would assume that it takes years to establish a company and build a large footprint. My personal opinion is that an answer of less than 5 – 8 years is a big whopping red flag.
8. How long has your company been involved in setting up branches? “Just a few years” would be a flag to me. A company with limited experience managing a large number of branch locations will go through a painful learning curve and take their branch managers along on the bumpy ride with them.

Is this every question you should ask? No – but this will give you most of the important ones. Each branch has a little different criteria that determine what is most important to that branch manager. The bottom line is do your homework. Remember the old saying “Look before you leap.”

I always welcome comments and questions.

How long will setup take?

These are the most common questions I am asked.

Are they the most important?

My answer is NO!

These are important questions but just about every company is close to the same answer.

Most companies are between $350 and $500 per file.
(We are $395 in most states)

Most companies are about 3-7 working days for your branch manager application to be approved.
(We are 2-3 days.)

Each state has different branch licensing requirements – so that step is dependent on which state you are in.

The questions that I think are important to ask are:

1. Is your company HUD approved?
2. If yes – how long have you been approved?
3. Has your company ever been suspended or fined by HUD?
4. Have any wholesale investors cut of or suspended your company in the last 24 months?
5. How many branches do you have active?
6. Does your company have any current buy back requests from investors?
7. How long has your company been in business?
8. How long has your company been involved in setting up branches?

In my next post I’ll explain why I think these are the most important questions to get answered if you are considering a net branch opportunity.

I just read the news that another national net branch company – Global Mortgage Inc. located in Clearwater Florida – has declared CH-7 bankruptcy.

Global like many others in the net branch segment of the industry was plagued with investor buy backs and operations problems that were caused in part to poor management and also from the pain brought on by churning branches.

At one time they had several hundred branches and operated in over 40 states.

My concern is for the branch managers and loan officers who will lose a lot on money in this melt down.

The current problems in the mortgage industry are a lot like the dot com boom and later crash of the 90′s. For a while everyone was running down the road ignoring all of the warning signs – then when they plunged over the cliff everyone was surprised.

Nothing replaces common sense business practices, nothing replaces a little conservatism when it come to financial matters. Most of the net branch companies that have folded exercised little caution when it came to business, they demonstrated little concern for lending rules and regulations.

Most net branch companies closed their doors (imploded) because of the investor buy back requests that hit them like a freight train.

We are growing while others are going into BK.

We have no buy back requests from our investors.

We grow at a controlled rate.

We do not have rapid branch turnover – some of our branches have been with us for over 5 years.

We do not bend or ignore lending regulations to make a dollar.

We support on branch network with solid business management.

I always appreciate subscribers and welcome comments and questions.

For more mortgage net branch information visit: NetOriginator.com

In my work speaking to prospective branch managers I hear this statement every day.

My answer / question is always the same. Are you sure?

I then ask several important questions.

• Have you researched the licensing requirements for loan officers and branch offices in the states where you are interested in originating?
• Are you aware that many states require licensing fees for a branch office to originate in their state?
• Are you aware that many states also requires fees for loan officers to originate in their state?
• Do you know that many states also require some type of continuing education in order to originate in their state?
• Do you know that some states require a physical location to originate in their state.
• Are you aware that some states like North Carolina require each loan officer to be licensed and that the education and test must be taken in person?
• Are you aware of the state specific compliance requirements for the states you where want to originate.

Some people thinking about opening a branch office of a national company think that they can originate in every state where the company is active without any additional time, effort, licensing or money. Unfortunately that is not true.

An “out of state” originator interested in developing business in Florida, California, Maryland, North Carolina, South Carolina, Ohio and many other states has to comply with each states licensing, education, disclosure and compliance requirements. Usually it does not work as intended.

Don’t misunderstand me, there are situations where you should work in more than one state.

• If you are in a border city like Kansas City, Missouri – you should also be licensed in Kansas.
• If you already have branches setup in more than one state – you should continue when you change companies.
• If you have established referral sources in other states – you should consider the investment of time and money to capitalize on those relationships.
• If you have an established office, you want to expand into another area and are prepared financially – that is a sound business decision.

The main point I am trying to make is that more or bigger is not alway better. Most offices “find” the majority of their business within 25 – 40 miles of their location.

Another related statement I hear is that there are other companies that allow me to originate in all states with out going through the licensing and education requirements.

I will try to address that topic in another post.

I always appreciate subscribers and welcome comments and questions.

For more mortgage net branch information visit: NetOriginator.com