FHA Net Branch Opportunities - are they all the same? (part 1)

OK you have decided that you are going to focus on FHA and to do that you are going to join a net branch company.

Are they all the same? Is FHA the same everywhere?







That's an easy one to answer. No!

Here are some of the key differences that you should understand when choosing a company to work with.

• FHA as a lender or as a broker?
• 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?
  

These, in my opinion are the primary points to focus on when deciding which company to join if FHA is important to you.

Let's talk about the first item on the list.

Does the company function as a lender or a broker for FHA?

There is no right answer to this one. It's really what is important to you because there is a trade off between the 2 options.

If the company closes FHA as a lender this means in most cases that you are not getting the true wholesale price on your FHA loans. The company has to pay for the expanded operations cost and will have at least a 1% - 1 1/2% point markup on the pricing. Sure the get a slightly better price as a correspondent but not the full amount they have to mark up the price.

There are several other disadvantages.

• If you are closing FHA as a lender you cannot broker FHA loans. In other words you lose the option to act as a lender or a broker. HUD has a rule that says a HUD / FHA approved mortgage company cannot act as a broker if they also act as a lender. So if you have an FHA loan that your company's underwriters does not like you do not have the option to broker that loan to an investor that does like the loan.
  
• Most lenders sell their closed funded loan to one or two of the big 10 wholesale investors. This limits the decisioning. If you take the same FHA loan and submit it to 3 different investors usually you will get 3 different answers. The difference could be pricing, conditions, or both.

The advantages to closing FHA as a lender are that you do not have to disclose the YSP you are making and you can say you are a lender.

If the company closes as a broker your disadvantages are primarily that you have to disclose your YSP.

The advantages are that you can shop different investors to find the right price and conditions.

In the next installment we will discuss the other differences.

Important questions to ask when looking for a net branch company (part 2)

In the previous post we looked at the common questions everyone asks.

"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.