SA Ibrahim: The President of Motto Mortgage is here today and that’s Ward Morrison. Ward thank you for joining us and I’m really looking forward to hearing more about Motto Mortgage from you, what makes it different? Why did you start it? How did you get to this point in the journey?
Ward Morrison: Sure. Yeah I’d love to tell you all about it. Motto started basically two years ago. We’re about to celebrate our two year anniversary.
SA Ibrahim: Congratulations.
Ward Morrison: Thank you. We’ve sold just over 90 franchises in the first two years. We have 67 of those franchises already open. We’re excited about that. We started back with a concept of bringing sort of the franchise system into mortgage for the first time ever. Net branches exist, obviously, as a main model out there but we wanted to bring the franchise model where people have them independently owned, operated and licensed franchises that they get to own and get to be entrepreneurs with.
SA Ibrahim: So what’s the difference between a net branch and a franchise?
Ward Morrison: Yeah. Franchise, like I said, is independently owned and operated. They all are individually licensed. We’re really just a network of a common brand called Motto Mortgage where each person is a franchisee, much like a Subway, much like a McDonald’s. They’re all independently owned franchises. We looked at the model out there, when we were originally studying it, we were looking for a way to get real estate companies into affiliated business, but as we got more involved with the franchise model we realized there were LOs out there who wanted to own their own shop and didn’t know how to start one. We realized there were investors out there who wanted to own a white collar franchise in financial services, and there’s really only a couple. Then we also learned that there was a lot of mom and pop mortgage brokers out there that we’d love to convert to Motto. They might be sort of a Dixie subsidy and they didn’t want to be a Subway but now in the future we hope they become a Motto Mortgage and join our franchise model.
SA Ibrahim: So you provide them with the products, the underwriting, the infrastructure, the compliance and the secondary market distribution among other things and technology?
Ward Morrison: Somewhat. So what we do as a franchisor is we only get involved in certain parts of their business. What we do is we do offer them setup guidance on how to get a license. We connect them with a license entity and actually pay for that lawyer on their behalf to get them through the license process. We do help them with compliance, we give them policy and procedure manuals so they can get them set up. We send them reminders and teach them how to do their quarterly call logs so they’re legal and compliant with the states for annual reviews. So we do help them with all of that. During our training we teach them about marketing compliance that they have to do. Some of the loan level compliance. But our unique model, is we actually aren’t a bank. We aren’t a lender. They aren’t a bank. They aren’t a lender. We actually connect them with our wholesaler network and the wholesaler is the one who underwrite, funds, sell and service the loan. So it’s even a simpler model. The brokerage model has been making a comeback. During 2009, they almost disappeared, right? They shrunk from over 40% market share down to about 4% and this year we think we’ll finish at 20% as an industry of brokers. We hope that becomes a lot more Mottos.
SA Ibrahim: That’s what makes this such an interesting industry because I remember when, I used to previously run a company GreenPoint Mortgage, 80% of the business came from brokers. The brokers are among the most enterprising and hardworking people in the mortgage industry and this is a very repentant industry. So, when everybody wrote their obituary I said you know I wonder how long before they come back?
Ward Morrison: Yeah. It’s been interesting. I think the COBB came in and made a ruling that the brokers can only make up to 3% of the loan amount. I think that’s been sort of shocking to people that the U.S. government stepped in and said this industry can only make X amount of money. But I think now that the rules are set, the playing field’s set, people realize if you’re making three and paying a loan originator a certain percentage of that, lets call it 100 basis points, that the margin is still there. Our cost per loan for our franchisees is very low because our overheads are typically lower than a traditional net branch model or any other mortgage banker out there.
Ward Morrison: Compliance isn’t as difficult in brokerage I don’t think, but we’re providing them tools. We give each one of our franchisees Ellie May Encompass. We give them what we call Motto Spark which is our CRM, which is powered by Total Expert. We give them an online reputation management system. We give them branding tools. We give them marketing tools. We try and provide them everything they would need out of the box. We sort of call it a mortgage brokerage in a box as our turn key solution. So what we try and do is really streamline the process and reduce the barriers of entry into the mortgage broker marketplace.
SA Ibrahim: So what is it that your experience or your thinking that led you to create this franchise type concept at Motto Mortgage?
Ward Morrison: Yeah, I mean obviously we’re a wholly own subsidiary of Remax Holdings which owns Remax the franchise. We were looking at ways for our franchisees to get back into mortgage with MSAs that were the traditional model of marketing services agreements that a lot of real estate companies were in with mortgage bankers. They were in with Chase, Wells, BofA, all the big players. When everybody pulled out of marketing service agreements we were looking for an opportunity to bring mortgage back to real estate companies legally and compliantly, first and foremost. We studied different concepts out there and we feel like the affiliated business model, if you do it right and you do it compliant, the one thing they do have is they have purchase money referrals sitting right there.
Ward Morrison: They are the source of those. So, by selling them a mortgage company they start to become a one stop shop. 51% of consumers want one stop shopping as long as they get a fair price. Why not have the mortgage person who owns the real estate company own the mortgage and have it right in the same building or down the hall or adjacent so that is a mortgage resource for those agents? I think on proximity we’re starting to win a lot of those deals. The one thing about a lot of our firms we’ve been selling to, they’re very productive firms. So they have those referrals right there in place. That’s what we’re trying to connect them to.
SA Ibrahim: So within the limits of following RESPA and all the compliance rules and regulations, do you think that your uniquely advantaged agents are uniquely advantaged in going after the purchase money business that you’re talking about for the first time home buyers?
Ward Morrison: Yeah absolutely. I think the biggest thing is if we sold it to a real estate company whether it’s Remax or whether it’s an independent real estate company they’re close to those purchase money referrals. I think the owners, because they own both real estate and mortgage are integrating the cultures more than they ever have been before. They can’t direct, they can’t steer, they can’t mandate, and they sure as heck can’t incentivize obviously via RESPA. So what they have to do is go out and earn the business. But through proximity, good product, good rates we’ve been seeing them earn more and more the capture out of their existing real estate companies. We think it’s a competitive advantage for them.
Ward Morrison: Both for them and the LOs who are sitting in that office.
SA Ibrahim: So do you look for any particular kind of profile for the franchisees? Is there something based on the two years that you have that shows who’s going to be more successful than the others?
Ward Morrison: I wish I had the secret sauce right now. I don’t quite yet. We’ve sold, like I said, a little over 90, 67 are open at various levels. We have some that are doing great volumes and then some who are just sort of getting started. I think the key there is are they a good repentant? Are they a good business person first and foremost? The biggest thing is are they a good recruiter? Are they going out and selling their mission, their motto if you want to call it, to the loan originators who they’re trying to attract in their marketplace?
Ward Morrison: Some loan originators are already doing business with their agents. You would think those would be the easiest ones to attract, but they’re not. They’re all independently owned minded entrepreneurs themselves. So that’s probably been the biggest thing is finding our right franchisees who have the gumption to go out there and recruit LOs and recruit the right ones that fit with their culture.
SA Ibrahim: So how many of your franchisees come from previous mortgage or real estate backgrounds versus totally different industries like fast food and so on?
Ward Morrison: Yeah, a lions share have been people who own real estate companies, whether it’s Remax or whether it’s an independent real estate company. A handful, plus, are investors who just want to buy a franchise system and they figured out financial services is a pretty lucrative one. We also have sold a handful to LOs who want to set up their own shops. So they’ve been varying types. A lot of our real estate companies really don’t have much experience in mortgage. That’s where we come in with our network and our model we teach them, we bring them in for training, we give them training and support. Unlike on the Remax model where we really stay independently owned and operated, we had to be involved with the deal time support.
Ward Morrison: So we have a whole loan operations team that can’t tell them how to do the deal, but can tell them how to do the deal in the system to support them during the deal. So that’s where we’ve been seeing some great success in providing that support in that function, which is totally different as a franchise or for our first time ever sort of delving into our people’s business. We really weren’t. We were franchise mortgage, we were never in the real estate business. But now we’re getting a little bit more into the mortgage business.
SA Ibrahim: I’m trying to think but I don’t believe I’ve heard of anybody else who created a franchise, are there any other players who are doing what you’re doing? Or close to?
Ward Morrison: You know in Canada there is. In Canada there’s nine major franchise brands within the mortgage brokerage industry. Here in the US we’re the first ever US National. I think there’s been a couple upstarts in the past that maybe opened up one or two stores. Ours selling more than 90 we feel like we’re on the right track, but nobody’s really tried it. I think the other thing that’s unique about our concept is obviously we charge an initial franchise fee then we charge ongoing royalty fees, but we don’t participate in the transaction. Ours are a flat rate model. So the more loans they do the more profitable they are.
Ward Morrison: We take what we consider our fair royalties on a franchise system, but no more. So a lot of people look at us and can’t believe we don’t participate in the actual origination dollars, which we don’t. We decided on that model from the beginning. We think it’s a lot cleaner and it creates separation between us and them. We don’t care how many loans they do. The more they do is better off for them, but not necessarily better for us. We think it’s a unique model out there. We’re not participating in that transaction which is unusual.
SA Ibrahim: So tell me a little bit about your previous experience before you got to Motto Mortgage.
Ward Morrison: Yeah. I had many previous experiences. I worked for Stewart Title, I worked for two mortgage brokers up in Vail, Colorado, for about five years. So I was in the mortgage business. After that I actually joined the largest Remax in the world, which is based out of Denver. We had a mortgage company, we had a title company, we had an insurance company. So I helped manage those entities as well. Then I jumped over to Remax about 13 years ago and started in their brokerage operations where I helped manage the franchises we actually owned. Those franchises were large and they had mortgage, title, insurance as well.
Ward Morrison: So I’ve been around mortgage for a long time, just not in this capacity. But I was part of the deal team that was going out there looking for opportunities to get Remax and our brokers back into mortgage. Luckily with my background it helped considerably. It’s been fun to get back into mortgage truly and the depths of mortgage. I enjoy the industry, I enjoy the transaction. We’ve had a lot of fun getting back into it.
SA Ibrahim: So based on your two years of doing this, what are some of the opportunities you see for this becoming a much larger piece of the pie in terms of the mortgage industry?
Ward Morrison: Yeah.
SA Ibrahim: Do you see others jumping in at some point?
Ward Morrison: You know, others jumping in? I hope not. I’d love to have-
SA Ibrahim: Canada has.
Ward Morrison: I’d love to have no competition. But yeah, I believe somebody will jump in at some point. But our goal has always been to sell approximately about 1000 franchises nationwide. We’d love to be in all 50 states, we’re in 28 states right now. With those, with a concentration a lot in Florida, Texas, Pennsylvania. But we’d love to be a national player in every state with Mottos. Really I’d like Motto to become synonymous with mortgage. I’d love to have it be no longer called Motto Mortgage but just called Motto and people understand that is mortgage. That’s what I’d love to see.
Ward Morrison: That’s my dream scenario of about 1,000 franchises out there with hopefully two to three LO’s in each one of those locations so we have 3,000 LO’s who we compete against the big players. Like Fairway or a Movement or a Prime or any other people like that who are out there guaranteeing a rate, etc. We’d love to be on their playing field.
SA Ibrahim: Now there’s a lot of concern about the slow down in the home sales and rates going up and home prices, some markets having gotten to the point where the affordability is a serious issue. How do you see those things as challenges in the near term for your business? Does your model position you competitively to work around those?
Ward Morrison: You know I think the brokerage model in general is a very, very competitive model. Brokerages in general don’t have the large scale overhead that a lot of mortgage banks or the large retail giants like Chase or Wells or BofA have particularly when it surrounds compliance. We have to be compliant, but our compliance is a lot simpler, I believe, than theirs because we don’t underwrite, sell, or service the loans. So I think the brokerage model will continue to have what I would call competitive advantage in the upcoming market. Do I believe rates are going up? Absolutely. Do I think home prices will come down? They always do because it’s inversely related.
Ward Morrison: So I think there’ll be some kind of slow down, my hope is that as we sell to a lot of real estate companies they are connected to that purchase money transaction and they’ll have the ability to weather the storm I’d call it. As we know, refinances will drop a little bit, they’ll never go away. But we think our Mottos are perfectly suited with not only our model type but their connection to real estate that I think we can ride out the storm better than most.
SA Ibrahim: Now given the fact that you live in Colorado and that’s where your company’s headquartered and I’ve been reading a lot about markets where home prices have gone up a lot and Colorado is one of them, do you have any insights into the Colorado market?
Ward Morrison: Yeah, I mean, I have to frame this very carefully. We’ve had a very large influx of people. For the last few years we’ve had an average of about 9,000 new residents coming into this state. Luckily that’s slowed down. I think, unfortunately, that a lot of them came in because of recreational marijuana. I hope as more states start to approve it, like California etc. I think our rate of increases have slowed down of people moving into the state and maybe they’ll go elsewhere, which hopefully will temper our prices. Because our prices are high compared to the rest of the country. We continue to have almost double digit appreciation which nobody can sustain.
Ward Morrison: So I’d like to see the amount of people moving in slow down and I think interest rates going up will actually help temper prices. But Colorado is definitely one of the places where renting and buying can be very difficult for millennials particularly.
SA Ibrahim: Now you said that you give your franchisees tools to monitor their reputation risk.
Ward Morrison: Yeah.
SA Ibrahim: How important do you think word of mouth experiences in driving business in the industry and can you elaborate a little bit more in addition to reputation management? How do you focus on the customer experience through your franchisees?
Ward Morrison: That’s a great question. Basically I think the industry is going to divert itself or bifurcate really. It’s going to either be low cost transactional providers who really connect the consumer through technology, much like a Quicken. Then I think it’s going to also have more of a high end concierge feel that you and I are probably used to which is the relationship. The relationship between the LO and the agent, or relationship between the consumer the LO and the agent.
Ward Morrison: What we really want to do is continue to emphasis that communication transparency are the two most important things about any deal. I think the Motto concept, I think that’s what we’re emphasizing more than anything. Like you talked about our online reputation management system, they can track all of their reviews. We want to make sure that people are getting those five star reviews so that they get repeat and referral business because I know when I was an LO unfortunately I was a transactional based guy so I moved on to the next transaction. Sure I had my agent based that I used and got referrals from, but I should’ve been more of a “customer for life” mentality. I think that’s something that at Remax and in our current franchise system over there we can bring that knowledge over to Motto and the mortgage industry.
SA Ibrahim: So you give them tools to stay in touch with their customers long after they have taken out a loan because they may take out the next loan or they may refer the business to somebody else? You don’t forget about them.
Ward Morrison: No, no, not at all. So with our Motto Spark, our new CRM that we rolled out through Total Expert, we hope that we can continue to nurture clients for many years to come by providing them great content, great marketing materials, great connection back to their loan originator who is their main relationship and hopefully bring them back for that refi when the rates actually stabilize or come back a little bit. We’d love to be on part of that next refi boom when it does happen.
SA Ibrahim: In the short time you’ve been in business have you been able to track any of the results from referrals from previous customers?
Ward Morrison: Yeah, I mean, we track particularly when we sold to real estate companies, we constantly monitor their capture rates. It’s all word of mouth from them. We don’t have the access into their records. We’re seeing anywhere from about 10% capture out of the real estate office all the way up to as high as 65% if you can believe that of the transactions that are buy sides in that office that they’re capturing from that agent base. So that tells me they are bringing in LOs who know how to establish relationships not only with the consumer but with the agent as well. I think that’s been some of the exciting things is to see the capture rates start to increase.
SA Ibrahim: Clearly from our interview it’s very evident that Motto Mortgage takes up a big part of your bandwidth, but how do you make sure you have enough left for your family, the really important things in life and for your hobbies? What are some of those hobbies?
Ward Morrison: Yeah. Well the first and foremost, I have a great team in place. So I probably have one of the best jobs in the world. I’m a start up backed by a publicly traded company. So for the last two years I’ve been running like a start up where I can only have so many resources, but I look upstairs I’m in a building that has 12 stories. The other 11 stories are there to support me anyway. So I didn’t have to go out and hire finance. I didn’t have to go out and hire accounting or HR or IT or even marketing. I’m handed that. So I really have my dedicated Motto team that helps me do a great job and stay on top of everything.
Ward Morrison: But I do have three boys and a wife so I try and make sure there’s time for them. They’re getting older, which is good. I’ve been part of a poker league for 13 years where we get 30 guys together and we play poker every month. My son just joined it recently.
SA Ibrahim: Wow.
Ward Morrison: I can’t believe I have to say this, but he actually got second place out of 30 people last month. I finished second to last. So it’s not a good feeling I’ve never had my 20 year old rub it in so much in my life. But it’s been fun getting to know him in a different light. That’s been exciting.
SA Ibrahim: But if you’re going to be second to somebody might as well be second to your son.
Ward Morrison: That’s true. Yeah. It’s been a fun ride. We have a great time together. We also play tennis and golf and things like that as well. Just try to make time. You got to set aside time. In a start up there’s always going to be something else to create or do, but you do also have to realize that you do have to set aside time and have balance in life and try and have fun. You’ve got to enjoy it.
SA Ibrahim: So we’re a start up company too, Mortgage Media. Our goal is to share some of the stories of people like you who are doing amazing things in the industry with your peers. We’d also love to find an opportunity to share the stories of some of your franchisees because it would be interesting to hear from them what’s happening, the market, their insights, and so on. Love to follow up with you in doing that.
Ward Morrison: We’d love to have you talk to them. So we constantly are monitoring who’s doing what out there in the field. We have some great owners already who are producing large scale volumes that we’re excited for them to see because for them a lot of them getting into the mortgage industry and actually participating legally and compliantly and the profitability of the business has been life changing.
Ward Morrison: So I think they’d love to share their stories on how they set up their individual Motto mortgages and how they’re succeeding on it, tracking LOs and retaining them and giving them the tools that we provide through our network to successfully keep moving forward as entrepreneurs.
SA Ibrahim: Including some of their customers who took out a mortgage. Because to me one of the things that’s always been so exciting about our industry as much as I’ve spent years in it I’m always learning something new. Most of my knowledge and insights have come from other people in the industry. So sharing the stories of other people in the industry is what we thought as founders of this company would be one of the most valuable services we could provide to the others.
Ward Morrison: Yeah I think it’s great. I think we try and do the same thing. I mean much like you’re trying to spread knowledge, we’re doing other things. Like Motto Mortgage has our mission against hunger cause where we allow all of our individual franchises to participate locally with food banks, churches, food pantries, whatever it might be and we give back. We want to be a company that gives back. So we started that cause almost right at the beginning and we’ve had a lot of great traction with it of people giving back in their communities.
Ward Morrison: So you’re spreading knowledge, we’re trying to spread a mission against hunger. We’re excited on some of the stuff we’ve done. We just had a situation with Hurricane Florence where we had one of our franchisees in North Carolina affected and his community and we donated $10,000 recently to the Northern and Eastern Carolina food bank and they’re going to use that to produce 50,000 meals for people who are homeless and no longer in their homes because of the hurricane. So as Motto, we’re excited that not only can we give back but our franchisees are giving back as well.
SA Ibrahim: Well that’s wonderful because I think the core of what makes our country so great is sharing ourselves with others, not just in terms of information, but in terms of the good fortune we have and helping each other. We’re all in it together.
Ward Morrison: Absolutely.
SA Ibrahim: Thank you so much for sharing your story with us.
Ward Morrison: Appreciate the time.
SA Ibrahim: Take care.