Joint ventures a lost opportunity? Not if they are done correctly.
Many major banks and lenders continue to exit various lending channels due to a number of reasons—one major concern being regulatory challenges. Lenders and servicers may claim that the risk versus reward does not substantiate the business line, and we most recently witnessed this with joint ventures.
However, if joint ventures are correctly established and the model is in place, why not invite the regulator to look at and inspect the model? If you have nothing to hide, and you are doing it correctly, it is a great way for a builder or Realtor to get into the mortgage business, mitigate their risk and participate in the profits based on the equity interest they have in the company formed.
Joint ventures along with marketing service agreements should be viewed as a defensive as well as an offensive strategy for mortgage lenders.
On the defense, the lender is in the position to maintain what is already there rather than losing the business to a competitor.
Offensively, enhancing the relationships with the broker and gaining more exposure in the partner's office is extremely beneficial. If you enter into a MSA, the lender gains the ability to be more visible than perhaps any other loan officer from a competitive standpoint. This increases recognition by attending sales meeting and being the preferred lender, among other marketing and sales tactics.
A mortgage company and loan officer can significantly increase exposure in a Realtor's office as well as in a builder's sales team; however just because there is a MSA or joint venture, they must remain proactive in order to capture the available market share.
When it comes to regulatory concerns, it really is a matter of interpretation from a Real Estate Settlement Procedures Act perspective for some.
Mortgage companies must ensure they are satisfying the HUD analysis, in order to not violate regulations. Joint venture companies are separate entities with its own employees. So, while there may be some secondary market risk to a degree, if the joint venture truly is a standalone company it will satisfy the 10-point analysis and not be in violation.
What to look for in a lender partner
Of course, the risk versus reward of managing large loan volumes will be determined by companies on an individual basis. If the builder or joint venture partner decides the reward is in fact greater than the risk there are certain characteristics to look for in a lender.
First, look at the lender's ability to close loans on time. Several of the major banks are inundated with refinances and they are missing 35%-40% of closing dates. It is essential to provide fast closing times and make sure your partner can turnaround the loan quickly as well. Next, look at the experience level of the people involved in the mortgage company or potential partner and be sure they are experts in their field and can fulfill the business needs. Lastly, make sure you won't be nickel and dimed on fees.
The loan officer's perspective should also be taken into account. The most beneficial set up of the joint venture model enables loan officers to originate outside business in the name of your current mortgage company that you have the joint venture with. Do not solely focus on referrals through partnerships or else, the lender may be discounting certain books of business.
If the joint venture is set up accurately, and the loan officer is successful in working the business and becoming highly visible, there is an incentive for everyone to use that company.
Joint ventures can create one stop shop for builder and Realtor clients. Rather than having 40 or 50 lenders to choose from, they can have their buyers use one preferred lender. Efficiencies are gained on all sides, no market share is excluded and origination opportunities are greatly expanded.
David Robinson is regional vice president and director of Alternative Sales Channels for Gateway Mortgage Group LLC. For more information visit www.gatewayloan.com.
