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Examining Desk 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 client experience. If you’re starting to think about a lender partnership, you’re probably evaluating your options and comparing the differences between a desk rental, marketing service agreement (MSA) and a joint venture. Each partnership level has its own benefits, and the right partnership choice starts with what you’re looking to accomplish with the relationship, what you’re willing to invest and what you’re looking to get in return.

Desk Rental: Testing the Waters
A desk rental is a common partnership arrangement where a lender will lease office space or an actual desk within a real estate broker’s office in exchange for referral business. With a desk rental, you get a lender who is available to answer your questions on-site without a significant upfront investment. For a desk rental to be compliant, the real estate broker must lease the office space at market value to the lender.

With a lower upfront investment, a desk rental will be a limited revenue opportunity. Additionally, a desk rental comes with a limited commitment from the organization. With less of an investment, the lender can choose to leave or change offices fairly easily.

A desk rental could be an opportunity to try out a partnership and see if it’s the right move for you. It has a higher level of compliance comfort but will have limits with the amount of revenue it can generate.

MSA: Dating More Exclusively  
An MSA is defined as a relationship between a real estate broker and a lender in which the broker agrees to market the service of the lender in exchange 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 hard to balance expectations between the lender and the referral partner. Due to the structure, it is based on services rendered, not normal operating financial best practices.

An MSA can sometimes create compliance issues. The Consumer Financial Protection Bureau (CFPB) states that “any agreement that entails exchanging a thing of value for referrals of settlement service business involving a federally related mortgage loan likely violates RESPA, whether or not an MSA or some related agreement is part of the transaction.” To remain compliant, MSAs require a substantial amount of documentation. Additionally, MSAs tend to have a higher lender turnover and lack the ongoing return on investment of a more balanced partnership. Over time, the turnover can erode the confidence of the referral partner’s organization, thus devaluing future opportunities.

This type of relationship requires you to collect better intel and set well-defined expectations with your lender from the start of the MSA. It means that you need to be organized in advance to meet compliance requirements and, most importantly, it means finding a partner that isn’t 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 company and apply it to maximizing the value of a mortgage relationship. A joint venture is defined as a standalone mortgage operation, which traditionally has shareholders that 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 gain access to all of the services of the parent company. This means that there is a clear operational, marketing, technology and customer service model for your brokerage to easily adopt and provide optimal value for the partner’s company.

There are three different partnerships that require different levels of capitalization. Each level has its pros and cons in regard to revenue caps and operational control. The three levels are broker, correspondent and full agency. Here is the breakdown of each model:

– A broker venture is the lowest capitalization required of entry. This model requires all loans to be sent to a third party to complete the mortgage process. In return, it can cause a loss of control and servicing for the client. Due to high-cost lending laws, revenue is limited.

– A correspondent venture has a higher capitalization of entry but more overall control of the mortgage process. In this model, the venture funds most of its business on its own, resulting in higher revenue opportunities.

– A full agency venture has the highest barrier of entry. It allows the venture to become eligible to apply for a HUD license. This allows you to fund all loans including FHA loans, thus maximizing revenue 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 return you would like 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 that ownership is offset with the reward of providing a mortgage model that is centered around your business.

Why is a joint venture partnership more valuable? Joint ventures represent the premier partnership model in the mortgage industry. It gives 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, advanced technology and a proven lender experience in today’s mortgage environment. A joint venture partnership is the best partnership tier for brokers with an entrepreneurial mindset and the desire to take control of their own company.

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