This article was co-authored by Tina Jablonski.
You may be in the process of making one of the biggest decisions of your professional life—determining whether or not to establish a branch affiliate relationship. During the last several years, more firms have considered such an option. Some are interested in developing Federal Housing Administration (FHA) business without having to pay the fees and provide audited financials. Others cite a desire to have the correspondent ability, in-house underwriting, the opportunity to work with a larger company that can leverage relationships and obtain better pricing, reduced accounting/payroll and human resources responsibilities, and access to multiple states without the expense of the required licenses.
Your success in finding the ideal branch affiliate partner will largely depend on the thoroughness of your research. The following are guidelines to help you select one whose model best suits your sales team and customer base.
Key considerations
The first step is to determine the most important factors involved in a branch affiliate relationship. For example, they will include:
►Company size/growth: Size can make a difference. Some companies have 200 branches and others have 12. You may find the one with fewer branches is more selective than the larger operation. The 12-branch company may give you more direct attention and take a greater interest in your success than the one with 200 branches. There probably will be a more family-type culture and attitude as well. You also want to know if the branch affiliate prospects are growing and on the incline or downsizing, which is a typical sign of decline. Another critical indicator is total annual production, as you want to be associated with a top performing organization.
►FHA lending process: If you’re interested in FHA business (and you should be), this is critical. Do they underwrite FHA in-house? That may be a plus considering lender turn times. However, if the corporate office is Full Eagle and underwrites the file, you have no option if it’s declined. Whereas, some companies may not have a Full Eagle, but utilize lenders as authorized agents to underwrite on their behalf. This provides an opportunity to revive an FHA loan with another lender if you strongly disagree with the initial underwriting decision and have the ability to change it.
►Compensation plans: This is at the top of the list for many firms. Some compensation plans are per file-based flat fee, while others are tied to basis points, and some build in an extra margin, which can impact your competitive position in the market. You‘ll find those that will cover expenses and overhead; however, the commission split will be lower. That’s fine if you’re not a risk-taker and want to make a good income by working the minimum 40-hour week. If you are truly entrepreneurial and seek a higher income, you’ll need to assume greater risk and responsibility, and make a more substantial personal investment in overhead and related expenses. In doing so, you will definitely be entitled to higher splits. In addition, investigate whether you are strictly limited to using in-house underwriting services and a corporately published rate sheet, which probably contains built-in margins that can impact your competitive position.
►Broker/correspondent options: There are distinct advantages to being either a broker or correspondent. It’s always good to have options, so don’t limit yourself to one business channel. If warehouse lines become an issue, you want the ability to broker. If the wholesale/broker channel continues to suffer, you will want strong correspondent relationships and sufficient liquidity on those warehouse lines.
►Management style: Management styles vary greatly and can have a major influence on your working relationships. You may chafe under a very structured system and welcome a more entrepreneurial approach that offers freer rein. Some people need more structure to be successful, while others thrive when left alone, as long as they maintain high volume. It’s also wise to know about the management and operations team. For example, if the principal leaders have not originated loans themselves, they won’t be familiar with what you’re dealing with on a daily basis. Everyone in our company, Gold Star Mortgage Financial Group, including the chief executive officer, has a strong origination background. The company was created by salespeople for salespeople. You should also confirm how accessible top management is. Our chief executive officer encourages an open door policy.
►Margins: If you operate on thin margins and are more of a high volume discount mortgage operation, you need to be aware of pricing when searching for a branch affiliate relationship. You may not be comfortable with a company that builds in additional margin or charges 0.25-0.375 per file. FHA yield spread premiums (YSPs) obviously provide more room to pay such a fee to the house, but that could be unappealing if you are a 75 percent conventional refinance-based organization.
►State licensed: If your plans include operating in other states, then you’ll be concerned about where potential branch affiliate partners are licensed. You will need to be licensed in those states and know the type of resources available to help your staff get licensed there. For example, we are willing to get licensed in a state if it’s a good fit and the right prospective company to joins us.
►Diversification: Forward-thinking firms are interested in diversifying their business beyond the residential mortgage base. Do you want to originate reverse mortgage loans or commercial loans, sell life or health insurance, annuities or credit repair services? Adding these product offerings to a core business can significantly expand your revenue streams, as well as bolster your loan closing capability. Offering additional products and services can enhance your long-term client relationships.
►Support services: You want to be certain the company provides excellent support. Is there a compliance department? There should be a thorough orientation to learn systems, meet management and sales staff, and schedule follow-up sessions. Their service menu should also include advanced technology, training and back-up. Leads likely are an integral part of your marketing mix, so confirm the company has a track record of providing and effectively using leads. Is there an ongoing marketing/advertising campaign to help promote the organization as well as the branches?
►Fee structure: You need to know about all fees, including accounting, payroll, technology, management and other. How often does the corporate entity charge these?
Review process
In addition to information on the above areas that you obtain from phone conversations, Web sites, brochures and other sources, the following are a few effective ways to ensure you’re getting both objective and subjective insights:
►A simple Internet search will reveal if there has been positive and negative publicity about the company. Are there any employee or customer complaints?
►You’ll get some useful information by mystery shopping. We constantly mystery shop our competition for retail and branch development because it generates valuable data about how other companies operate. See how the branch affiliate organizations respond to a series of questions.
►Ask to contact employees at other company branches to get the real “story.” Query them for their honest assessment of the organization. You can always “read between the lines.” Also, consider how long the branches have operated and the length of employment for branch managers and top originators.
►Of course, you must visit your potential employer before making a decision. You want to get a feel for the energy in an office and how the people interact. This will also give you a better understanding of the company culture. Make sure to meet the upper management team and others involved in affiliate relations. When interviewing with a potential branch affiliate network, don’t exaggerate about your production and abilities. You don’t want the company to have unrealistic expectations, but rather, have an accurate view of your potential so that you can establish a solid foundation. Also, you will want to review a copy of the contract to confirm your responsibilities, the company’s guarantees and other essentials.
►Don’t forget that throughout your due diligence process, the companies you talk to will be researching you. They will call their industry partners, wholesale reps, title companies, and others. They will Google search you. Make sure if you are doing social networking for business or personal reasons—using LinkedIn, MySpace or Facebook—that you are representing yourself well.
Certainly, there are other actions you can take to help select the best possible branch affiliate organization. Your priority should be to do research the candidates, ask the tough questions, be satisfied with the answers and then do everything possible to make the relationship succeed long-term.
Shawn Sirko and Tina Jablonski are vice presidents of business development at Ann Arbor, Mich.-based Gold Star Mortgage Financial Group. They may be reached by e-mail at
[email protected] or call (800) 201-LOAN.
