• Key Insight: Uncover how Rate's P&L model gives branch managers autonomy to set their own margins. 
• Expert Quote: "We are not arrogant enough to think that we know more about somebody's business than they do." — Ryan Ogata, Rate

Overview bullets generated by AI with editorial review.   

Mortgage companies go out of their way to recruit high performing teams, but the expected origination slump is creating a new imperative.

Lenders are looking to fill in volume, in a market which potentially could be worse than October industry forecasts indicated.

For some the shift includes adding profit and loss branches. A profit and loss branch runs largely as its own business inside a larger lender. The branch manager is responsible for the branch's revenue and expenses and is paid from what's left over, rather than earning a set salary or override from the parent company.

In September, Rate, which is based in Chicago, added a branch in the city's suburbs which formerly had been a part of Fairway Independent Mortgage.

Other recent announcements included a recruiting pitch by Atlantic Bay for Ohio loan officers; OriginPoint, a joint venture between Rate and Compass, bringing in a Los Angeles-based team; and NEO Home Loans adding a Jacksonville, Florida producer.

National Mortgage News recently spoke with Ryan Ogata, executive vice president who heads up the company's profit and loss branch business, referred to P&L for short.

The following is an edited version of our conversation:

Is the current mortgage interest rate environment an opportunity for lenders like Rate to grow their P&L branch business?

Ogata: I don't necessarily think that the mortgage climate per se is a driver for adoption of a profit and loss type of structure. I see profit and loss as being an offering that fits very well in line with what an independent mortgage banker is really all about, and ultimately providing an originator, an entrepreneur, the level of autonomy to calibrate things specific to the subtleties of their marketplace. We've got different originators that have built sort of different books of business throughout their career. 

There's no one size fits all to what they built. In some markets they're differentiating on service, in other markets they're differentiating on price. We are not arrogant enough to think that we know more about somebody's business than they do. We are simply providing an option for them to plug into us.

Some reasons originators might be looking for a new model: margins are very tight, interest rates are going up. They may be looking at a P&L arrangement.

Ogata: I would make the argument that's where I think traditional retail would come into play. If somebody is focused on just writing loans and doesn't want to have their hand in setting margins, staffing, all of the things that go with running a business, that's where the retail offering would come into play.

The profit and loss space, at least in my mind, is for those experienced branch operators that want to control those aspects. They value the businesses that they've created, the identities that they've created in their respective markets, and they just want to keep all of that control, but plug into the resources of Rate. You could have a situation where you've got very, very high revenues, but then you've got a corporate cost structure that eats those, and the net results after you go through the gauntlet of the P&L isn't so great. Or you might have a situation where you've got lower revenues coming in, but a much smaller corporate cost structure, and the revenues are identical.

It's the truest kind of comparison apples to apples from a revenue side. The rest of it is really up to the individual branch operator to choose how it is they want to apply those revenues to ultimately grow their business. Is it marketing? Is it staffing? We're going for that business manager that wants that autonomy to really run things on their terms.

What are Rate's expansion goals through the P&L business?

Ogata: Every company needs to grow; otherwise, they're going to die. So growth is a common theme you're going to see with every single mortgage company. It doesn't mean we're not going to focus on retail, it's frankly the bulk of what we've done historically but the P&L space is really another opportunity. When I think about recruiting an individual originator, there's tons of them that maybe don't want to mess with a P&L.

But this opens up our appeal to some of the more established branch operators that are already working on P&L. Let's compare our cost structure to yours. If there is a better route, let's continue the conversation and look at all of the other benefits that you get by making the transition to Rate. That's all of the bells and whistles that salespeople need in order to be successful in what is a contracting market.

Again, everyone's going to be fighting for a larger slice of the pie, but the industry is going to do less. They need all of that support in order to go out and amplify and augment their sales presence.

So when you are adding new branches, is it those who are already established or loan officers looking to go out on their own?

Ogata: There is the right person who wants to take their career to the next level and stop focusing entirely on their own personal originations and start looking at building a branch, building a team, acting in like a sales manager capacity, 1,000% we would pursue that opportunity.

The application of the P&L model is not singular. Of course, we want to recruit good existing branch operators that have a team and have a large pipeline to bring with them.

But we also want to open up this model to the producer who wants to take that next step and get a little bit more clarity into what is baked into the margins that they're doing. If they had the ability to control those revenues and invest them in the manner that they thought would better serve them, as long as it's a viable business, of course we're going to entertain that conversation. So I would say it's probably both.

With mortgage industry consolidation talk in the air, is this also an opportunity for Rate to acquire some branches?

Ogata: We would obviously want any and all conversations of any business opportunity, where somebody wants to compare apples to apples. Maybe your company is being acquired, and maybe you want to use this as an opportunity to really kick tires and see what's out there. Of course, I would welcome that opportunity because I firmly believe when you stack us up, they're going to realize, hey, the grass is possibly greener over here.

What about product menu and pricing?

Ogata: We have all of the products that Rate offers. The branch manager has the autonomy to decide what individual margins they would like to establish for. They are truly in the driver's seat for how they want to calibrate the revenues coming into the branch, and we can get as dynamic as setting revenue floors to protect themselves for smaller loan amounts. We can set revenue ceilings to make the pricing more aggressive once they reach a certain revenue amount. We have a lot of customizations and calibrations we can do for their pricing dynamic that they want to achieve.

So it's a growing business?

Ogata: We have made some adjustments to the model that ultimately seemed to be resonating with the outside P&L managers that are now seriously considering Rate. It's like everything. It's evolved a lot, and I think that the evolution of anything like this needs to be constant. It is, how do we look at things? How do we look at problems? It's coming up with something that ultimately does good by the customer, but also the services the producers and the branch managers and teams they're looking at.