Choosing A Mortgage Net Branch Affiliate

When an experienced mortgage broker starts looking at the interesting opportunities in becoming a mortgage net branch operator, there is one question that is consistently asked often more than any other: Is it better to become an affiliate branch for a direct lender, a mortgage broker or a bank? To answer that million-dollar question, let’s take a quick look at the pros and cons of affiliation with each of these institutions.

Direct Lender, Mortgage Broker or Bank?

First of all, let’s take a quick look at the statistics. According to the industry stats, banks- including Federally Chartered banks- are most likely to fail in the current economy, coming in with a whopping 84% failure rate. Direct lenders and mortgage brokers are doing far better these days, with lenders at a satisfyingly low failure rate of 12 percent, and the percentage of failed mortgage brokers at a mere 4 percent. What does this mean in terms of mortgage net branch affiliation? Common sense says that the best bet is to affiliate with the companies least likely to fail. Here, the direct lenders and mortgage brokers clearly win out over any type of bank.

Another effect of the straining economy is the tightening up of the credit score standards and hiring restrictions for loan officers and mortgage brokers who wish to work with an affiliated company under the net branch system. Among other hiring restrictions, banks and direct lenders are required to veto the hiring of anybody with a credit score lower than 620. Because mortgage brokers are only limited by state guidelines, which tend to follow more relaxed standards, mortgage brokers and loan officers looking to get in on a net branch opportunity will have a wider range of options available to them, and will likewise have a larger pool of talent to recruit employees from. Within the net branch structure, loan originators are also significantly more limited in their product offerings and constraints when working for a direct lender or bank. Mortgage brokers have a wider range of options and fewer constraints because they aren’t stuck with one particular lender. In terms of flexibility, the mortgage brokers seem to be nosing out both banks and direct lenders.

So far, the score seems to be banks at zero, direct lenders at one, and mortgage brokers in the lead with three affiliation plus factors. Neither banks nor direct lenders are down for the count, however. Direct lenders and banks do typically give their affiliated net branch companies better access to loan underwriting than mortgage brokers. Although internal company structures can vary, that does gives banks a much needed plus factor to get their affiliation score above the zero mark, and puts direct lenders back in the game with the mortgage brokers.

On the other hand, mortgage brokers generally get lower pricing than is available to the loan officers working with direct lenders or banks, giving net branch loan officers affiliated with brokers an edge over the competition. Although it hasn’t always been the case, current loan closing stats indicate that mortgage broker affiliated officers are closing loans more quickly than those affiliated with direct lenders or banks, and receive payment on the loans they originate more quickly as well. The bottom line seems to be that although all three institutions have some advantages, the best bet for a successful net branch company is affiliation with a mortgage broker.