Small mortgage brokers are turning to the mortgage net branch as the alternative business model to succeed in the highly competitive home lending industry. The net branch in the mortgage industry simply means branch partnership or affiliate which gives players more independence and less of the constraints faced by larger and licensed mortgage brokerages.
The advantages of going into net branch are many and varied, starting with the ability to maximize use of scarce capital. Usually, the smaller brokerages don’t have enough experience, time or cash flow to sustain them through hard times. It takes a lot of money, energy and staying power to hire underwriters, funders and closers, compliance officers and secondary market experts. But the net branch route does away with all these requirements.
They provide smaller brokerages the turn-key solution that levels the playing field between them and the large institutions. The loan partners or broker who goes into net branching can continue as an entrepreneur while also gaining the firepower of the larger mortgage bank, without the burden of bureaucracy.
Another distinct benefit is automatic exemption from nationwide licensing which is mandatory for large mortgage brokers. By affiliating with the larger institutions, a mortgage net branch in effect operates on a multi-state license, with a more expansive area of coverage. The independent branch is thus spared the cost and effort of securing state licenses, which takes months and hundreds of thousands of dollars.
Working on this also yields 100 percent commissions, whereas many experienced loan partners in brokerages, banks and credit unions only earn 35 to 75 percent of their originated yields. A number of high-quality branch partnerships offer 100 percent of both the origination fees as well as yield spread premiums. Thus, the difference in income can be dramatic volume-wise.
In sum, the mortgage net branch model could be a great business decision and the transition would be relatively easy if the smaller brokerages get the right branch provider. It enables the small brokers to penetrate a bigger market through multi-state lending. All these brokers need to do is to know the ins and outs of the mortgage banking industry and its secondary market. They must a clear understanding of mortgage programs, how to move them, how to place borrowers in a program, how to run a mortgage branch and how to retain loan partners.