Firm gives entrepreneurs "deeper connection than direct to consumer lenders"
In difficult economic times, choosing the right business model can make or break a company.
Faced with lower profit margins, a rising rate environment and a huge drop in demand for refinance loans, mortgage companies are having to readjust to survive.
But although Motto Mortgage is a relatively new player in the industry, having joined the mortgage party as recently as 2016, the company is aiming to grow this year.
Described as a mortgage brokerage franchise, the firm was launched by one of the biggest names in real estate, RE/MAX, and during the last five-and-a-half years it has sold more than 300 franchises – that’s about one a week.
Its ‘mortgage brokerage in a box’ business model is deceptively simple. By pairing a franchise with a real estate brokerage, homebuyers have direct access with a real estate agent to find a home. It also allows entrepreneurs to become licensed mortgage brokers.
Read more: Motto Mortgage highlights growth on fifth anniversary
Ward Morrison (pictured), the president and CEO of Denver-based Motto Mortgage and Wemlo, is convinced empowering individuals to open a franchise gives the firm a distinct advantage over the competition.
“By putting them in the local market, we believe we have a better, deeper connection than direct to consumer lenders, or even larger lenders, because we typically are in the local community,” he told MPA.
About 72% of the firm’s sales go to real estate companies or real estate teams, and by selling to them, they have purchase referral – what Morrison calls “diamonds in their backyard”.
The industry is sitting up and taking notice. During one of his recent video pep talks, Mat Ishbia, the president and CEO of wholesale lender UWM, urged brokers to forge closer relationships with real estate agents in response to falling refi demand. The point was not missed on Morrison.
“UWM’s right. Everybody now, unfortunately, is trying to establish those realtor relationships. But since a majority of our sales are already to real estate companies as an affiliated business, they’ve had that relationship from the beginning when they bought Motto,” he said.
As part of the firm’s growth strategy, Motto added “the last piece of the puzzle” in December 2020 with the purchase of fintech start-up Wemlo, with a view to solving “the number one problem” faced by the broker channel - fast and cost-effective loan processing.
“From the get-go, when we established our franchise brand, we said, ‘what is the key technology we need to bring a mortgage broker or their loan originators to make them successful?’ It was obviously a loan origination system,” he said.
Read more: Wemlo boosts mortgage processing service with AI-powered tech
A sanguine Morrison said he was confident the current economic turmoil would not impact on the firm’s growth - the war between Russia and Ukraine notwithstanding.
But while houses are selling faster than ever, supplies are also at a record low, and with rising interest rates - the average on a 30-year fixed mortgage hit 4.29% last week - he was asked if the housing sector could withstand the shocks.
“Last year there was 6.1 million resale homes - that’s above the average, which typically is about 5.5 million, and, even during the Great Recession, we only dipped down to 4.59 million,” he said. “So we believe that next year is probably going to be less than six million, or somewhere between 5.5 and 5.8 million.
“It’s still a lot of homes being sold. So, I think there’s opportunity there. I think the supply and demand problem still exists, but if you think about the millennials, they’re 72 million people.
“They’re bigger than the boomers and Gen X and they’re forming families and getting married, so I don’t foresee a problem. Changing demographics are too much in favor of family formation and continued demand. So I think there’s going to be continued focus on purchasing homes.”
With Motto’s business tending to be counter-cyclical, and mostly reliant on purchase rather than refi by a ratio of 65 to 35, the current economic tailwinds would not have as big an impact, he added.
His view of faltering giants Zillow and Better.com is that they were overstretched by their massive overheads, adding that they would have been in trouble much earlier had they not benefited from a massive refi boom.
“Our overhead costs are so much lower than in the mortgage banking channel to originate a loan,” he said. “Prior to the Great Recession in 2008, mortgage brokers used to originate almost 35% of all loans. After the crisis, mortgage brokers sort of took the blame for the subprime mess, and they almost went to zero, and now we’re back to about 15% market share. So, the mortgage broker channel is going to continue to grow and we’re looking to hire loan originators.”
