Feb. 23: Notes on LO comp, the role of independent mortgage bankers, LO productivity, and recruiting

The current blog STRATMOR blog is, “How are You Going to Compete?” Many companies have stopped competing, and I am often asked if I track and tabulate residential lender closures. I don’t, but this spreadsheet (go to the very bottom of www.robchrisman.com and click on “mortgage banking closures”) came to me second hand, attributed to the gang at Reuters. (Note: I have not confirmed any of the information, nor would I know what to do if the information is incorrect so no need to write to me with corrections. Anyone impacted can post their resume for free at www.lendernews.com.)

Originator tools & productivity

A STRATMOR survey shows that one of the biggest obstacles to adoption of tools is LO adoption, not consumer adoption. What are originators saying?

From Wisconsin Dick Karth addressed thinking that loan officer sales productivity hasn’t changed in over a decade despite millions of dollars being spent on technology with, “While I’m not surprised, I am amazed.

“In the late 80’s and deep into the 90’s I was operations manager at a thrift that relied heavily on mortgage original. We went from a 100% paper and typewriter environment to a, extremely automated, no typewriter, LOS that was integrated into our servicing system and GL system (all on the same platform).

Our LOs were more productive than our competitors as were the processors, underwriters, closers (we closed almost all our own loans and made good money at it), and back office functions. The key to this success was scrapping all the screens given to us by the LOS vendor, creating screens back in the late 80’s and early 90’s that mirrored the 1003 and other industry standard docs, using mixed focus groups to ferret out time wasters, and using data from customized TENA Companies quality control reports to focus on where the errors were.

“We often heard, ‘But you don’t have to fix (or automate) that, it only takes a few seconds.’ Trust me Rob, NOTHING takes only a few seconds, it’s really measured in minutes, and it adds up when you’re doing 10,000 or more loans a year. I’m sure by 2019 many LOSs are as advanced and sophisticated as we were back almost 20 years ago. But are they really as productive as they could be?

“One thing we did discover was while many members of our staff embraced the productivity improving functionality that we gave them, others were reluctant. They were deeply invested in their tried and true paper, spreadsheets, and Rolodexes.

“Another thing I learned is that often good producers who had potential were reluctance to take the time to learn the new tools available to them. They were afraid they’d miss a deal if they took out time to train. While later working for a region bank with a large mortgage operation I drove almost two hours to good producers office to provide one on one training with an appointment. Four hours of scheduled training turned into less than an hour of productive time due to ‘problems with my deals,’ ‘this is the only time they could come in for the app,’ etc.

“Well thought-out LOSs and CRM systems are tools. And while I am often critical of technology because it isn’t intuitive enough, time must be taken to learn how to use those tools.” Thanks Dick!

From Gibran Nicholas, CEO of Momentifi I received, “One of our main priorities this year is to improve loan officer sales productivity with modern technology. Most LOs still close an average of 4 loans per month: The same numbers we were looking at 10 years ago, before all the really cool advances in technology we’re seeing today. So why hasn’t technology improved LO sales productivity?

“A lot of it has to do with poor user adoption. Take CRM for example. According to CSO Insights, less than half of sales professionals use their CRM to grow their sales! So, what causes poor user adoption? I would argue that poor user adoption is due to poor communication (and perhaps lack of proper focus) on the part of the person who’s trying to get the LOs to use the new technology. Think about this from the LO’s perspective. As a human being, if I’m not convinced that something will make my life better, I simply won’t use it. To be an LO is to be human. Here are my ‘Three Steps to Treating LOs Like Humans and Improving Your User Adoption Rate and ROI on Technology’:

“Step 1: Understand the mind of the LO. If I’m an LO, I’ve chosen to work in a business where it’s entirely possible to make a six-figure income without being required to spend hundreds of thousands of dollars and a decade of my life in school. More importantly, I’m a patriotic American. It’s un-American to expect other people to pay for my choices in life. Conversely, it’s un-American for my leader/manager to expect me to pay for his/her communication failure. My leader’s failure to communicate the value to me of his/her technology initiative is not my problem.

“Step 2: Clearly communicate how the technology will help you and the LO make more money and offer to split the cost with them. For example, assume the technology costs $70/month ($35/month to the LO and $35/month to you). If the LO uses it: [a] it will help your company generate an extra $700/month in profit; [b] it will save the LO 1 hour per day; and, [c] it will help the LO generate an extra $1,400/month in commissions. That’s 20x ROI for you, and 40x ROI for the LO. Here’s how you might communicate it: ‘Our company, like the rest of the industry we’ve been blessed to work in, is focused on increasing our profits this year. We’re also focused on helping you preserve and grow your six-figure income in light of competitive pressures that will only get worse. So we’ve decided to invest in modern technology that will generate 20x ROI for us, and 40x ROI for you. How about I provide this technology to you free for 60 days and you try it out? If you use it and it helps you, we both make more money. If you use it and it doesn’t help you, we discontinue it. Would you be interested in partnering up on this to see if we can both make more money this year?’

“Step 3: Track usage and results. Then, recognize that not all human beings are a good business fit for you. For example, any human being who is not interested in saving 1 hour per day and earning a 40x ROI on their investment would clearly not be the type of human being that you should waste your time and energy on. If the LO is not interested in your offer, or if they don’t use it after committing to try it, it’s probably best for you to part ways now. This will free up your time to focus on the LO’s who want to grow and thrive with you in today’s modern, highly competitive business environment.

“This approach is provocative, I know. But what’s the alternative? Going out of business while modern companies use modern technology to eat our lunch and steal our clients? These are challenging times for our industry. LO’s, like all humans, expect leadership… especially in times like this. Let’s give them the leadership they deserve by communicating more effectively and not tolerating mediocrity when it comes to sales productivity. Would Apple or Amazon tolerate mediocrity in the performance of their teams? They are in business to win, and they win by investing in world-class teams who scoff at mediocrity and pursue and demand excellence for the sake of pursuing and demanding excellence.

“In that vein, I would argue that the primary purpose and focus of any technology initiative at a true retail mortgage bank should NOT be to improve customer experience. It should be to improve your employee experience, and help your employees do their jobs better in today’s modern, highly-competitive environment. That’s how you drive ROI, improve your user adoption rates, and leverage modern technology to improve sales productivity. After all, it was Richard Branson who said, ‘Clients do not come first. Employees come first. If you take care of the employees, they will take care of the clients.’ It may be a good idea for us to follow this advice, or at least try it out for free for 60 days and see where it leads us.”

Other conversation topics in the biz

I received a lot of favorable comments about the letter last Saturday about legal and regulatory LO comp issues. Lenders are continually scrutinizing their operations to try to reduce the “friction” between application and funding the loan. Instead of 100% commission when the loan funds, has anyone tried 50% when the loan funds, and 50% when it is actually sold to an investor? Unfortunately the LO doesn’t control much of the process, but would that help quality and lower the number of issues? How about all these ex-underwriters becoming LOAs (loan officer assistants) and being paid basis point instead of salaries? What’s changed in the LO world since the LO comp rules in 2012?

The current recruiting environment? Here’s a note from the trenches from someone trying to find LOs. “As an employer and chief recruiter I am very frustrated with how other smaller companies like mine are compensating their Loan Officers. Here is what I have seen in the last 3 months. LOs still being paid a split of what they bring in. Bring in a bigger rebate and you will make more money. Point bank to be used for compensation, marketing, phone, dinners, referral fees, etc. Flat LO Comp plan of 50bps with the remaining comp paid to an outside marketing company. So the more you make the more you make. Branch request where the husband is the LO and the wife is the office manager. This makes it very, very hard to compete not only for a loan but also for the services of an LO. I could go on and on….at times I just want to send a letter in to the regulators. Don’t these owners know their LOs are interviewing and will share very clearly how they are being paid?”

Current M&A? Someone with exposure to a wide range of lenders ventured, “These owners are shrewd business people. If you show a sign of weakness, that might depress your value. Many of the M&As I know of on the independent mortgage bank level have been done out of necessity (whether it be for growth or just staying afloat), and the former owners are now in financial handcuffs, often contractually obligated to new owners for 3 years. It is hard for them to go from head decision maker to ‘employee.’ They are tight lipped about it for a variety of reasons, whether contracts or even ego. There has been a really high rate of bank mergers is the last year! I guess for additional economy of scale, cost cutting, efficiencies, etc. etc. Compression all over the place, not just in profit margins!”

An unnamed industry vet mailed over, “Has anyone noticed how much large banks are losing originating home loans? The mid-sized banks are better but making almost nothing. No wonder HomeStreet threw in the towel. The large independents are not doing great either. The mid-sized independents are doing ok, but only relative to everybody else. My bet is that small independent lenders are not doing well as this is arguably the most difficult segment of the market. The large independents and large banks have MSR income to offset some origination losses, but that is not a good model. Without that MSR income more of them would be throwing in the towel.

“As I see it, there is nothing that is going to make the large bank profitability better except extreme cost cutting. How long will their management and owners allow them to lose money? It appears to me that there is still too much capacity in the biz and that you have to think that some of these banks will exit originations or scale back in 2019 and 2020, but many of those LOs will go to another company. I just see these bank LOs having a tough time, because the IMBs don’t really want them and banks are not expanding, so where are they going?”

Speaking of the independents, the Mortgage Bankers Association released a white paper on the important role IMBs play in today’s market. “IMBs are now the primary source of single-family mortgage credit, and particularly so for low- and moderate-income families. The paper examines recent developments driving the growth of the IMB segment and the enhanced regulatory climate in which they operate. It also suggests policy recommendations designed to make the origination and servicing of mortgages an attractive and stable market for any lender – bank or nonbank – that wants to devote investment capital to supporting sustainable homeownership.”

Scott S. relays, “Like many in the mortgage business, I’ve had my share of struggles. For instance, I used to be addicted to the hokey-pokey, but I turned myself around.”

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “How are You Going to Compete.” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.


(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are hundreds of mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2019 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)

Rob Chrisman