Multi-channel mortgage lender New American Funding (NAF) is entering the joint ventures arena, offering multiple JV models in a margin-compressed and highly regulated industry.
Under the JV model, partners will have access to NAF’s infrastructure and mortgage originating process. It will allow the company to mitigate the risk associated with being in the mortgage business and minimize the capital-intensive nature of the business, the company said.
NAF is looking for a 50/50 joint venture between the California-headquartered lender for virtually any size real estate brokerage, a larger agent team, a new home builder and a wholly-owned mortgage business.
“With the refinance boom gone, fierce competition for the purchase business is causing significant margin compression,” Al Miller, national director of strategic relationship at NAF, said in the announcement.
For a standalone model, NAF and the partner company will form a mortgage banking company that can support funding loans of at least $150 million annually. The two lenders will each own 50% stake in the JV.
In a consortium model, currently popular in the title business, NAF will create a standalone mortgage banking company that will sell shares equal to 50% of the company. With this model, shares are intended to be for individual companies that have the scale for loan funding a minimum of $50 million annually and aggregate fundings for the combined owners of $300 million annually.
NAF will consider a mortgage brokerage model if it is done based on using it for speed to market and as a strategy to evolve into the full mortgage banking model in the near future, the company said. The third model has a low barrier to entry, in which capitalization and licensing complexities are much less than the standalone model.
With various services plus capital in place, a joint venture ramps up faster than a traditional mortgage company. At a mortgage brokerage joint venture, loan officers generally get paid a lower base salary than counterparts at traditional lenders and may get a smaller commission because the LO is doing less work finding customers since there are greater real estate agent referrals.
While a mortgage brokerage JV model was popular during the pandemic years, a new federal regulatory regime could put the model at risk of expenses from the lack of regulatory enforcement information as well as lesser margins, as the industry’s volume is tied to housing cycle shifts.
The partial acquisition model would be used when a company that owns and operates an independent mortgage business is looking to reduce its current capital investment and risk by selling a 50% portion of that business to NAF. After the sale, the partner would enter a standalone JV.
This fourth model could also be used if the partner is already in a JV with a lender and that lender is willing to sell NAF their ownership.
Founded in 2003 by Rick Arvielo and his wife, Patty Arvielo, New American Funding offers a variety of conventional, government, adjustable-rate and non-qualified mortgages. The California lender originated $15.12 billion in volume in 2022, down about half from the previous year’s $30.44 billion, data from Modex showed.
Licensed in 50 states and Washington, D.C., the lender has 168 active branches nationwide with 1,615 sponsored MLOs, according to the NMLS.
