in Blog, LBA News by Kelley Mangel

Loan Originator Compensation and the Mortgage Profitability Conundrum

Reinventing LO Comp: Driving Innovation in Ways to Pay
“Who will be the first to re-invent LO compensation?”

That seems to be the million-dollar question these days as lenders continue to grapple with increasing expenses and declining per-loan profitability.

According to the MBA’s most recent Quarterly Mortgage Bankers Performance Report, lenders netted an 8-basis-point loss per loan (roughly equivalent to $118 per loan) in Q1 2018. Even though this is down from the 9-basis-point loss ($237) reported in Q4 2017, it still represents an unsustainable state of affairs for lenders.

Of course, sales expenses, most notably compensation, represent the lion’s share of lender’s production expenses. The latest Peer Group Roundtable data from the MBA and STRATMOR shows that sales expenses represented anywhere from 45 to 59 percent of lenders’ production expenses in 2017.

While declining volumes do bear some responsibility for the current situation, current sales compensation structures are certainly exacerbating the issue. Clearly, something has to change.

We’re already seeing some lenders explore alternative compensation models, like net branching, and lenders are also asking some very pointed questions about what is and is not permissible in regard to compensation in certain types of scenarios.

Others are taking things a step further by placing accountability at the branch manager level, as LBA Ware CEO & Founder Lori Brewer notes:

“I’ve talked with several lenders recently who’ve said they are starting to hold their mid-level managers more accountable by tying sign on bonuses to specific metrics and shortening the leash of LOs who aren’t out-earning their draw balances.”

With this added layer of accountability, branch managers are going to have to start taking a sharper look at their bottom quartile performers and take action. Some lenders will take the approach of coaching and motivating their bottom-tiered loan originators to improve their individual performance, while others will cut ties with LOs that aren’t meeting minimum performance levels. This is an area that we’ve taken an interest in as well. We’re now examining the data we have on our clients’ bottom tier performers and will be sharing the results of our analysis in an upcoming white paper so stay tuned!

At the end of the day, what’s really going to drive innovation in LO compensation is figuring out how to incentivize and motivate sales staff in ways that also align with corporate profitability goals.

Easier said than done, right? Not necessarily…

What’s preventing most lenders from doing this today is an inability to access and analyze their compensation, pipeline and profitability data side-by-side. But with the proper application of automation with a system like CompenSafe, lenders can harness their data to create incentive compensation plans that drive profitability through increased productivity and efficiency.

Are you currently re-inventing your LO comp? Let us know what you’re doing. We want to start an open dialogue on this topic.

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