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We have the infrastructure, the needed processess, and the systems to run the successful, independently branded mortgage business. You are the best at what you do, and so are we so you can entrust us with most of the day-to-day heavy lifting.
When you partner with NAF, you're giving your team direct access to one of the nation's most reputable privately-owned mortgage companies.
You're pointing them to a network of professionals committed to providing an efficient and affordable path to homeownership for people of all backgrounds.
And you're closely tied in with an innovative industry leader quickly growing beyond the mortgage space into a whole-home provider.
The Right Model
Multiple partnership models fit the unique needs of almost all partners. We can mitigate the risk associated with being in the mortgage business and minimize the capital-intensive nature typically required while producing a long-term reoccurring revenue stream and providing far greater control over the mortgage process.
Personalized Loans
As a private company, we remain nimble and can adjust to market conditions without consulting shareholders or investors. This enables us to offer all the traditional loan products and a suite of unique programs specially designed for today's homebuyers and homeowners.
Unique Benefits
State-of-the-art technology creates a smooth process for borrowers, real estate agents, loan officers, and operations staff. We offer unique programs that cater to the needs of diverse buyers, including a nationwide cash buyer program, a lead source system, and a deep product menu with the full ability to broker loans.
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SUMMARY Having a well-run and operated vertical of CORE businesses is no longer nice to have. It is, in fact, a got-to-have. It's been reported that upwards of 70% of EBITA is from Core Services. Things like mortgage, title, insurance, and escrow business. But in today's ever-changing real estate and mortgage markets with extensive regulatory oversight and a capital-intensive environment, owning and operating a standalone mortgage banking company is not for the faint of heart. With the refinance boom gone, fierce competition for the purchase business is causing significant margin compression. As a result, many historically successful companies struggle to achieve a reasonable ROI for the considerable amount of capital they have invested and the fixed cost burden of maintaining the quality of services that a sales force and consumer demand. This article presents a high-level overview of the case of considering a 50/50 Joint Venture between NAF for virtually any size real estate brokerage, a larger agent team, a new home builder, and an established wholly-owned mortgage business. The ultimate goal is to create a strategic partnership that increases profit margins for both entities.
New American Funding, also known as (NAF) brings considerable experience, financial strength, and resources to any Joint Venture. As a privately held well, capitalized top national lender and servicer of mortgage loans, we bring to the table a proven platform that can offer our partners all the needed and desired services to operate a world-class mortgage business without the requirement for significant capital, personal guarantees and continuous additional investment in systems and tech. We minimize fixed costs and most of the business risk. NAF places a strong emphasis on the partnership factor. Partners work closely to apply best practices to every business function — from Capital Markets, Human Resources and Marketing to Technology and Operations. Ultimately, a successful Joint Venture is intended to reap mutual benefits:
NAF Ventures will be the nation's most transparent, trusted, and valued Joint Venture partner of choice, providing exceptional leadership, service, and greater control over the transaction to ensure the very best customer experience for their home financing needs.
In addition to fluctuations in interest rates, economic cycles, and inventory levels, the mortgage industry is experiencing a dramatic change in how consumers prefer to obtain loans. More and more buyers are choosing the lower-cost “self-serve” process of getting a mortgage online. This shift is driven primarily by technological advances and demographic changes in the homebuyer population. NAF is a leader in using technology to streamline the loan process. This results from a proprietary solution allowing for total end-to-end digital origination and CRM with co-branding with business partners Changes in Profit Margins From 2020 to mid-2021, the mortgage industry experienced some of the highest profit margins in history. Margins fell in 2021 as lenders competed for in a smaller market due to reduced refinance volume. The industry has adapted, and margins are recovering and stabilizing, with a slight recovery expected in 2024. The shift in borrower preference for obtaining refinance and purchasing loans online is of significant concern. The cost structure of this business model places considerable pressure on traditional retail mortgage company profit margins. Online lenders typically do not have a commissioned sales force — or if they do, the commissions are significantly lower than those at a traditional retail mortgage company. This allows online lenders to offer buyers a much better rate. The shift to online lending may indicate what will become the dominant business model for mortgage origination. As previously mentioned, the encouraging news is that NAF has already invested multiple millions of dollars in this area and is ready to utilize an originations strategy that will meet the needs and preferences of the consumer. This can be anything from having highly experienced loan officers in your offices/branches who can utilize a best-in-class digital origination application to a fully staffed call center approach. Gaining control over the transaction With the mortgage process being one of if not the most complicated aspects of the transaction, without a direct connection with the actual decision-makers, everyone in the process is potentially subject to poor service and lack of communication with a lender. Our JVs are the actual lender, so the JV's leadership direct control over the prioritization of a file so that should an issue arise, they have authority to push the easy button. This leads to create a greatly improved customer experience resulting in a higher level of customer satisfaction, leading to higher retention of customers and repeat business from past clients. Not to mention the value of the NAF's bet in class lead generating, lead incubation, and co-branding marketing, all designed to make the sales teams the hero in the eye of the consumer. Regulatory Factors Last but certainly not least, today's regulatory environment seems neutral to slightly negative for the mortgage industry. However, compliance costs will increase in many areas over the next few years. We offer the expertise of a professionally managed platform consistently focused on RESPA and state compliance for the protection of all parties.
There are four different models to discuss. As the basis of this, each joint venture is set up to where NAF goes into a mortgage business agreement with a company or even with several different companies/groups, and the net profits are distributed in a Respa-compliant manner based on the percentage of ownership. These can be with several different types of businesses, such as real estate brokerages, residential new home builders, regional banks, and credit unions, as well as a large organization with a significant number of customers/members that mortgage services can be sold to. There are four main models to learn about and consider. Standalone Model, We jointly form a mortgage banking company that we each own 50%. This model is intended to be utilized for prospective partners with a significant scale business, which after analysis, can support the funding of mortgage loans of at least $150 million annually. The Consortium Model is where NAF creates a standalone mortgage banking company that will sell shares equal to 50% of the company. Not all have the needed scale or capital to justify a standalone JV, so in this model, shares are intended to be for companies that individually have the scale of loan funding a minimum of $50 million annually and aggregate fundings for the combined owners of $300 million annually. The member earns a distribution of profits for the entire company based on the percentage of shares owned. This model is currently popular in the Title business. Mortgage Brokerage Model This model has a low barrier to entry in that capitalization and licensing complexities are much less than the standalone model, as are the economics and ability to control service delivery. At this time, we would only consider this if it were done based on using it for speed to market and as a strategy to evolve into the full mortgage banking model in the not-too-distant future. This lower investment is because most states require liquid capital in the range of as little as $25k to $200k. In addition, there is a need for a reasonable amount for the initial operating capital. Note that this model will not be a direct FHA / VA lender, and under the requirements of Dodd–Frank, there is a limitation on the amount of total income that can be generated. There is also additional disclosure required to the consumer as to the amount of gross income that is being generated for the mortgage transaction. Partial Acquisition Model This would primarily be used when a company owns and operates an independent mortgage business and is looking to reduce its current capital investment and risk by selling a 50% portion of that business to NAF and then entering a standalone JV. This could also be used if a company is already in a JV with a lender and that lender is willing to sell NAF their ownership. One of the advantages of this model is speed to market as it mostly requires a change of control notification to the various regulators of the current JV.
The capitalization for the JV under the Stand-Alone banking model is in two segments. A total of $1 million to meet HUD's minimum net worth requirements plus needed operating capital of between $100k - $200k for a total of between $550k - $600k each. Consortium: We create the licensed mortgage business for the consortium and then sell shares to separate companies/groups. Their combined investment would be the same as that of the stand-alone model, but the induvial member's investment is based on the percentage of shares they are allowed to purchase; they will receive a distribution of profits based on that ownership percentage.
In most cases, while we move through the deployment phase of a JV, we would likely hire all the needed management and LO staff into NAF as employees and agree to pay a partner a fair market-valued desk rental fee for each office within your offices we occupy as well as a monthly Advertising Services Agreement (ASA) paid for actual services performed and validated. Once the JV is fully operational, those employees will transfer to the JV with the same compensation and benefits. Using this method allows the team to be fully indoctrinated into your company with the training curve completed so that the JV can hit the ground running and get to profitability sooner.
Operating Agreements: This is the basis of how we all agree to run the business and comply with regulatory requirements or mandated accounting practices that benefit our partners by utilizing our JV's aggregated scale for things like warehouse credit lines. We will form an Operating Committee / Board of Directors that will meet quarterly to review the performance of the JV, discuss in detail what is working and what isn't, and create action plans as needed. Shared Services Agreement: This is a document in which the JV hires NAF to perform services for a fee on a closed loan basis for things such as processing, underwriting, funding, and shipping. One fee is for operations support, and another is for internal non-op's related services, including but not limited to accounting, legal, licensing, marketing, compliance, and technology. Correspondent Agreement: The agreement between the JV and NAF for the JV to sell loans to it.
Staffing To be RESPA compliant, all loans must be originated by employees of the JV. With our partner, we will hire a JV President to direct the day-to-day operations, recruit, coach, mentor, and deal doctor with the JV loan officers, and be actively involved with the partner's management team. Operations support Each JV will have dedicated support. The JV operations team will only deal with our JVs and your Loan Officers will know who their processor, underwriter, and closer are. We utilize NAF's capacity and expertise for as many loan manufacturing functions as possible, including processing, underwriting, funding, shipping, and management. In doing this, we minimize fixed costs so that most expenses are incurred only when revenue is available. This can be accomplished centralized or in the local market of the JV. However, consideration will be made for the JV having local processing of a JV-employed processor in the JV if the JV has sufficient scale and financial stability to warrant adding this fixed cost. Because of risk, it would be a major exception for a JV to have underwriting done by JV-employed personnel. With the Shared Services Agreement, NAF will provide internal support services to the JV that are that of the scale and efficiencies of a top national lender. Things like day-to-day legal services, licensing, marketing, training, compliance, internal audit, and technology. It is not the intention of NAF to provide these services at a profit to it, but under RESPA, we must pass through the true and accurate cost incurred. Monthly we provide our partners with a comprehensive financial package of the JV in which we will document the cost incurred and charged. Annually, we will adjust this cost up or down to be compliant. Branding & Marketing Each JV will have its own unique name and branding. Still, the goal is to be cost-efficient in utilizing the depth of NAF marketing materials. Every JV's unique color scheme and logo will be created with your direct feedback and approval. There will be a comprehensive library of materials to be used. Warehouse Credit Lines A JV model aims to mitigate risk and minimize fixed costs. Because our JV partners do not have expertise in the mortgage business, most partners will not have or be inclined to accept the risk tolerance or the capital needed for a dedicated warehouse line of credit. As such, the goal is to piggyback off NAF's current lines as sublines. Distributed Retails involvement Your JV will potentially have an army behind it. When a partner's business is geographically aligned within the footprint of a NAF region and/or retail branches, and the JV would benefit from that management support, we will look to give economic credit to that retail unit from NAF's portion of its profit in the JV. While each JV controls its own margin management and the resulting loan pricing, we pledge to align this and compensation with the retail business practices avoiding potential competitive issues and resulting in a positive recruiting environment.
Like yours, our business is, at its heart, a sales organization. Every day we partner with some of the best and most productive mortgage experts by being open and transparent, which earns their trust and loyalty. Our JVs are run the same way. Our JV partners are more than just a business relationship. We build close long-term relationships and count our partners as family. NAF has the processes, systems, technology, and experienced personnel to integrate both organizations seamlessly. We follow a Gantt Chart of over 800 steps to deploy a JV successfully. The longevity of these partnerships is due, in large part, to an unwavering commitment to ensuring mutual success.
New American Funding is one of the nation's top mortgage lenders. In fact, New American Funding is the largest woman-owned and Hispanic-owned mortgage company in the country. Celebrating its 20th anniversary in 2023, the company is proudly privately owned, focused on innovation, and built to last.
NAF offers start-of-the-art technology that helps ease the mortgage process for borrowers, real estate agents, loan officers, operations, and everyone who touches the loan. In addition to being exceptional at closing loans, the company also offers other programs that set it apart, including:
Entering into a Joint Venture is not a decision to be made lightly. As this report has shown, there are many factors to consider and questions to be answered. As for the next steps, we would look forward to scheduling a meeting for you with the NAF executive team to determine how you can benefit from pursuing a Joint Venture.
