in Blog, Incentive Compensation, Mortgage Lending, Performance Management by Kelley Mangel

How high is loan originator turnover — and what’s behind it?

Mortgage industry experts are always talking about how to appeal to today’s borrower. But what about appealing to the modern employee?

The churn rate of loan originators (LOs) is almost double the national average for U.S. workers. In fact, in our analysis of the performance and production of over 6,000 LOs over a 30-month period, we found the average tenure at a single mortgage company to be just 2.29 years. Whether that turnover is voluntary or involuntary, the rate at which it is occurring should concern lenders, especially as profit margins continue to tighten — because replacing talent is never cheap.

Many factors contribute to the massive expense of hiring. For starters, there’s the expense that goes into bringing candidates to your door. This includes straightforward advertisement and job posting fees as well as less tangible expenses, like the opportunity cost of diverting branch managers’ attention from revenue-generating initiatives to interviews and onboarding. Then there’s the cost of paying out guaranteed minimums while new employees are busy getting trained on culture, processes, technology and compliance instead of having their feet on the street.

The Cost of Hiring a New Loan Originator

According to the U.S. Department of Labor, the actual cost of a new hire is on average 30% of the employee’s annual earnings. So, how much does this high turnover cost you? Let’s take a look at the data from our analysis to find out.

Average monthly volume: $706,876

Average annual commission: $91,000

30% of $91,000 = $27,300 per LO

Given that the average volume of short-lived LOs in our study was $706,876 per month, yielding them $91,000 in annual income, we can deduce that hiring costs lenders in the ballpark of $27,300 per LO. Yikes!

In the face of this information, it is prudent to understand what drives employee turnover. In a report examining the top reasons employees leave, recruitment agency Hays found that 43% of employees cited corporate culture as the main reason they sought other opportunities. Other prominent studies have pointed to opportunities for professional development and perceived supportiveness of employers as top drivers of employee retention.

And employers must keep in mind that different employees will have different priorities. With millennials representing the largest generation in the workforce, it’s especially critical to understand their needs. A recent Glassdoor study found that 71% of millennials are likely to leave their company in two years if they are unhappy with how their leadership skills are being developed.

Whatever the motivation, LO turnover is both common and costly, and managing it effectively is essential to an organization’s success. So, what’s a lender to do? In part two of this two-part series, we’ll demonstrate how data insights can help shape performance management strategies that drive LO retention.

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