BATTLECALL GUEST EXPERT: Amy Melena, Advantage Mortgage

The mortgage industry landscape is one 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.

Exactly what is an independent mortgage branch?

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.

Who is a good candidate for an IMB?

There are two. The primary 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. The other ideal candidate is the small-to-medium-sized 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 oneself.

Aren't all IMB programs the same?

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. Making a wise choice can be tricky. Making a bad one can be disastrous.

What are the advantages of this arrangement?

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. Another big benefit is that the branch manager may be able to conduct business in every state that the company is licensed. FHA & VA mortgages accounted for a large percentage of all loans closed last year&yet approval to do those types of loans is expensive, difficult and time-consuming to obtain. In an IMB the branch manager has those licenses soon after approval. This is a huge benefit and probably the most frequently cited reason for opening an IMB. 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!

What are the disadvantages of an IMB?

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.

What will it cost me to start up?

Good question&with many answers. Some such companies want anywhere from $500 to several thousand dollars (we've even heard of one that is asking $50,000&but is as yet unverified). 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.

How can I tell a good IMB program from a bad one?

That's the $64,000 question. The answer is to ask both yourself and them 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 going to be 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 for you 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.

What are the two biggest mistakes people make in selecting a  branch networking firm?

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.                 

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)&

What questions should I be asking when shopping around for a potential IMB relationship?

This is the question that will save you from one of those nightmarish experiences that are, regrettably, all too common in our industry. Here is a list of questions (and some additional remarks) that you may want to use:

1. Are your branch managers permitted to broker outside your system? What restrictions, if any, exist regarding outside brokering? (Some companies say you can broker but later you learn that you may only do so after the company has had first crack at it, or in some cases, only after you've closed a certain monthly quota of production.)

2. Can I do loans in states other than my own? (Some do, most don't, some charge extra for this, if they do it at all.)

3. What are your junk fees? (Yes, we have them just like wholesalers do. They should be low or at least comparable to those.)

4. What do you charge per loan?

5. Do you have any production quotas?

6. Does your agreement contain any non-compete language? (It does? Really? Why is that?)

7. Does your agreement contain any pipeline retention language?

8. Do the fees I pay you on loans apply to just those loans brokered, or am I going to be paying basis points on loans both brokered and those brought into the "house"?

9. Can I work from a home office?

10. I have good working relationships with a few lenders that are not on your list; will you sign an agreement with each of them for me?

11. How many branches do you have?

12. In how many states are you licensed?

13. How much closed loan dollar production do you do each month? ( If you get an honest answer, this question will tell you if you're talking to a true mortgage banking firm.) 

14. Do I have to buy anything from you? (Like letterhead, forms, business cards, etc. Some require this and it can be very expensive. The branches are retail profit centers for many of these companies.)

15. Do you have systems in place that will make it easy for me to grow if I choose to expand aggressively?

16. Will you put an underwriter in my office when we need one?

17. Which states are you in? (You may never do loans in NY, NJ, AL, NC, SC, CA, VA, MI, or Washington D.C., but if your company isn't legal to do business in all of those "difficult" states, then they probably aren't serious, committed mortgage bankers. You should also be certain that you would be permitted to do loans in other states if you choose to&some companies are legal in many states but you'll find out later that they won't permit YOU to do loans outside your own state. Be careful!)

18. How do you make your money?

19. Do you have experienced, full-time professional account executives and support staff that will help me hire and train, assist in putting together marketing campaigns and troubleshoot problems&or not?

20. Tell me all the fees and penalties that you can charge to one of your branches&are there per-loan fees, delivery fees, rush fees, EPD (early payment default) recourse penalties, administrative fees, payroll fees&please detail ALL of your company's fees to me!

21. Why should I consider becoming a part of your branch network?

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!

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