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Franchise Program Allows Brokers to Stay in Business

The innovative franchise system launched by a mortgage company may enable mortgage brokers to go into business for themselves and earn additional compensation in an industry recently beset by tough new compensation rules.

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In a June 2 release, ""LenderCity"":http://www.lendercity.com, a Missouri-based company, announced its completion of a Uniform Franchise Disclosure Document (UFDD), which will allow licensed brokers running businesses to retain their financial independence and access back-end services without losing their identities.

Greg Harris, LenderCity's president and CEO, said that the franchise model differs significantly from the better-known net branch model, which requires brokers and loan officers to give up their licenses, accommodate new accounting procedures, and ""essentially become an employee.""

""The franchise program allows loan officers to get into business for themselves and allows them to take home a much bigger slice of the pie instead of having to split"" it with other brokers, Harris said. A mortgage broker's existing company ""will stay intact but operate as a LenderCity office under the program.""

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""The franchise system that we have empowers them to go back into business for themselves,"" he added.

Harris said that brokers and loan officers that sign up with the franchise will retain rights to the LenderCity brand, receive customer service and administrative support, and continue to operate independently.

""There are certain systems in place that they'll have to follow,"" such as assuming the LenderCity name, Harris added. ""This is to keep all lender services the same, but mortgage brokers won't be employees ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô their licenses are theirs, their books are theirs.""

Harris said he will allow LenderCity to accommodate 20 new franchises in 2011, and 40 over the course of 2012. He reported zero competition, citing a shortage of franchise systems in the loan origination broker channel, where net branches, independent businesses, and retail and correspondent shops dominate the employment landscape. He said that brokerage systems are popular in Australia, Canada, and the United Kingdom, but entirely absent in the United States.

LenderCity's franchise system announcement comes on the heels of a ""Barclays Capital weekly report"":https://themreport.com/articles/barclays-new-compensation-rules-threaten-brokers-2011-06-14, which forecasted that new compensation rules pushed by the Federal Reserve in accordance with the Dodd-Frank Act will force independent brokers to close up shop.

According to the report, brokers may forego as much as 90 percent of their compensation under the new rules, which ban lenders from paying loan officers revenue derived from yield-spread premiums and dual compensation services. The prohibition would drive brokers ""out of business and into correspondent and retail shops,"" analysts said.

Founded in 1997, LenderCity is a Fidelity Mortgage company with 30 partners around the country, including Bank of America, Fifth Third Bank, and Wells Fargo.

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