Does the franchise model work for the mortgage industry?

by Kimberly Greene12 Nov 2018

It works for KFC, it works for Subway, it works for Starbucks. Franchises have been a way for entrepreneurs to get into the game while still having the support of an institution and a brand—so why should mortgages be any different?

The first thing that Ward Morrison, president of Motto Mortgage, wants people to know about Motto Mortgage is that it is not the same as a branch model. Motto is a mortgage brokerage network of independently owned and operated, individually licensed offices.

“We’re not a lender, we’re not a bank, we’re not a correspondent lender. We are truly a network of mortgage brokers, so that’s been the hardest thing to get them to understand. On the other side of it is, because we’ve sold to a lot of real estate companies, they’ve had original consternation that we’re being not legal or compliant. Believe me, ReMax has been a franchise for over a long time, we weren’t going to set up a franchise that wasn’t legal or compliant,” Morrison said. “That’s been the biggest pushback on the industry is really not understanding what we are, and then thinking we were doing something illegal when we’re not.”

Motto Mortgage is a wholly-owned subsidiary of ReMax. As mortgage is complementary to real estate, they started thinking of ways to further intertwine the two, both connecting mortgage brokers with the tools, technology, branding, compliance, set up guidance, and anything else needed to get up and running quickly, and also dealing with the compliance and legal aspect.

Morrison said that once they sat down and figured out what they wanted to offer, they’ve targeted four main customer types: real estate firms as an affiliated business model; LOs who are looking to set up their own shop and don’t know how to do it; investors who were looking for a “white-collar franchise” in the financial services industry; and the existing independent mortgage brokers.

Motto Mortgage was founded in 2016, with their first branches opening in the spring of 2017. They’ve sold to a lot of ReMaxes and other brands that have a lot of purchase transactions, and Morrison said that they’re optimistic about their growth potential at a time of overall decreasing volume because of that connection to purchase transactions.

For better or for worse, originators and real estate agents are connected at the hip. While some originators champion moving to a strategy that involves more self-generated leads, a closer connection with realtors is obviously attractive to many originators working in the space. If an originators joins a Motto franchise owned by a real estate company as an affiliated business, they have a built-in benefit in terms of realtor partners. As anyone who’s ever worked a phone knows, warm calls are better than cold calls.

“I’m not going to get [partners] for free, I still have to develop my relationships, but what we see more and more with the real estate being connected to mortgage is, when they have a deal, when they have a scenario they want to run down, they didn’t used to have somebody down the hall that they could go talk to. They could call their person, but now they can walk right down the hall, or they see the person in the lunch room, they talk to them and now can run that scenario by them, so it’s creating this integration. The model’s more integrated than the MSAs used to be in the past because the person owns both, so they’re part of the Christmas party, the potlucks, the training, the education, Motto LOs are right there and that’s a competitive advantage for any LO that joins one of our Mottos that’s owned by a real estate company. “

There’s also a philanthropic component to Motto Mortgage. One of the ways that Motto helps individual brokers give back to their local communities is through the donation of foodstuffs that people ordinarily toss when moving house. Motto gives each of their customers a canvas Motto Mission Against Hunger bag for them to donate canned or dried foodstuffs, which then gets donated to a local food bank or local food charity. They’ve donated more than 50,000 lbs of food to food banks in 2018.

Motto Mortgage wants to continue to bring more would-be originators into the fold by lowering the barrier that many people experience when they want to get into the industry. They aim to provide setup guidance that removes any intimidation on how to become a mortgage broker, and that will also help brokers grow market share regardless of whether the industry contracts as a whole.

“I really, truly believe in the brokerage channel,” Morrison said. “Not only is the broker channel growing and potentially thriving, it’s going to be a  main channel of usage in the future, just because of the cost to originate loans for mortgage bankers and retail banks is increasing by the day, whereas I think the brokerage model is a lot more efficient than those other ones can be.”

Morrison argues, why would anyone want to manage the P&L where, in Motto’s franchise model, they can own it? Calling Motto the “Subway of mortgage,” Morrison wants to continue growing the brand and providing everything that brokers need to thrive.