Which partnership is right for you? – RISMedia |
Review of office rental, marketing service agreement and joint venture partnerships
In today’s exceptionally busy housing market, broker-lender partnerships are more important than ever. The right partnership can give you the opportunity to grow your business through market cycles and deliver a consistent customer experience. If you are starting to think about a lender partnership, you are probably weighing your options and comparing the differences between an office rental, a marketing service agreement (MSA), and a joint venture. Each level of partnership has its own advantages, and the right partnering choice begins with what you are looking to accomplish with the relationship, what you are willing to invest, and what you are looking to get in return.
Office rental: Testing the waters
An office rental is a common partnership arrangement in which a lender rents office space or an actual office space in a real estate broker’s office in exchange for a referral business. With an office rental, you get a lender who is available to answer your questions on the spot without a large upfront investment. For an office rental to be compliant, the real estate broker must rent the office space at market value to the lender.
With a lower initial investment, renting an office will be a limited income opportunity. In addition, renting an office comes with a limited commitment on the part of the organization. With less investment, the lender can choose to leave or change office quite easily.
Renting an office can be an opportunity to try a partnership and see if it’s the right decision for you. It has a higher level of compliance comfort but will have limits with the amount of revenue it can generate.
MSA: Meetings Plus Exclusively
An MSA is defined as a relationship between a real estate broker and a lender in which the broker agrees to market the lender’s service in return for a marketing fee. An MSA provides the lender with additional lender-focused marketing that has the potential to increase revenue. In this relationship, it can be difficult to balance expectations between the lender and the referral partner. Due to the structure, it is based on services rendered and not on normal operating financial best practices.
Sometimes an MSA can create compliance issues. The Consumer Financial Protection Bureau (CFPB) states that “any agreement that involves exchanging something of value for referrals from settlement services companies involving a federally-linked mortgage loan likely violates RESPA, which a MSA or a related agreement may or may not be part of the transaction. . “To remain compliant, MSAs need a substantial amount of documentation. Additionally, MSAs tend to have a higher lender turnover rate and do not have the continued ROI of a more balanced partnership. Over time, revenue can erode the trust of the referral partner organization, thereby devaluing future opportunities.
This type of relationship requires you to collect better information and set well-defined expectations with your lender early on in the MSA. This means you need to be organized in advance to meet compliance requirements and, most importantly, it means finding a partner who is not just transactional.
Joint Venture: A True Partnership
A joint venture is the entrepreneurial option for brokers and lenders who can use their success in growing their business and apply it to maximize the value of a mortgage relationship. A joint venture is defined as a stand-alone mortgage transaction, which traditionally has shareholders who include both a mortgage company and a referral source. As its own legal and financial entity, through ownership, a joint venture is the compliant way to maximize the earning potential in a mortgage relationship. When you partner with an established lender, you have access to all the services of the parent company. This means that there is a clear model of operations, marketing, technology and customer service that your brokerage can easily adopt and deliver optimal value to the partner’s business.
There are three different partnerships that require different levels of funding. Each level has its advantages and disadvantages when it comes to revenue caps and operational control. The three levels are broker, correspondent and full agency. Here is the breakdown of each model:
– A brokerage firm is the lowest capitalization required at entry. This model requires that all loans be sent to a third party to complete the mortgage process. In turn, this can lead to loss of control and service for the customer. Due to high cost loan laws, income is limited.
– A corresponding company has a higher entry capitalization but more overall control of the mortgage process. In this model, the company finances most of its activities itself, which translates into higher income opportunities.
– A full agency business has the highest barrier to entry. It allows the business to become eligible to apply for a HUD license. This allows you to fund all loans, including FHA loans, thereby maximizing income and increasing the customer experience.
When forming a partnership, your choice depends on the type of customer experience you want to deliver and the level of feedback you want to get. Essentially, the more you invest in your partnership, the more autonomy you have over the operations of the entity. The greater risk you take with this property is outweighed by the reward of providing a mortgage model that is focused on your business.
Why is a joint venture partnership more valuable? Joint ventures represent the first model of partnership in the mortgage industry. It offers brokers a compliant partnership to operate freely with the tools of an established lender in a compliant environment. Joint venture partnerships give brokers access to impactful marketing, cutting edge technology and a proven track record of lenders in today’s mortgage environment. A joint venture partnership is the best level of partnership for brokers with an entrepreneurial spirit and the desire to take control of their own business.
For more information, please visit www.cmgfi.com/jv-partners.