in Blog, Guides, Mortgage Lending, Performance Management by Kelley Mangel

Six Steps to Building a Data-Driven Loan Originator Retention Strategy

In part one of this blog series, we outlined how much loan originator (LO) turnover costs. With LO churn rates nearly double that of other U.S. industries, it’s an expense that could be weighing heavily on your margins. One way to combat the high cost of LO turnover and improve the longevity of your top performers is to build a data-driven strategy that dives into what’s causing the churn.

1. Loan Originator Turnover Rate

Part one of drawing up an effective game plan that promotes LO retention is evaluating your current turnover rate. Here’s how to calculate your turnover rate:

LO Turnover Rate = (# of LO Terminations ÷ Avg. # of LOs) x 100

Step 1: Identify the number of LOs that were terminated in the time period. This includes both voluntary and involuntary terminations.

Step 2: Find the average number of LOs for the time period by adding the number of LOs at the start of the period to the number of LOs at the end of the period and dividing by two.

Step 3: Divide the number of LO terminations by the average number of LOs, then multiply that by 100.

Here’s an example of LO turnover at a mortgage company in a single month:

  • LOs as of Apr. 1:   946
  • LOs as of Apr. 30:   944
  • Number of new hires in month:   24
  • Number of terminations in month:   26
  • Average number of LOs:   (946 + 944) ÷ 2 = 945.0
  • Turnover rate:   (26 ÷ 945.0) x 100 = 2.75%

Calculating your monthly LO turnover rate helps you identify when turnover is at its greatest, which can be helpful in capacity planning, but it doesn’t necessarily give you the full picture.

To explain why, let’s look at the same company’s annual LO turnover rate:

  • LOs as of Jan. 1:   906
  • LOs as of Dec. 31:   995
  • Number of new hires in year:   192
  • Number of terminations in year:   103
  • Average number of LOs:   (906 + 995) ÷ 2 = 950.5
  • Turnover rate:   (103 ÷ 950.5) x 100 = 10.84%

Because the mortgage industry is prone to seasonality, we recommend calculating your LO turnover rate both monthly and annually. It will give you a more accurate view of where you stand as a whole.

But knowing your turnover rate is just part of the equation. To achieve true insights for improving LO retention, you need to understand what is causing the turnover.

2. How LO Terminations Impact on Your Business

Once you know what your LO turnover rate is, you need to understand the cause of the terminations as well as their effect on your business.

First, identify who was terminated with questions such as:

  • Were they top or bottom performers?
  • How long had they been with your company?
  • What was their experience level?
  • What generational group do they belong to?
  • Were they part of an origination team?

Next, determine the impact these terminations had on your business. Ask yourself questions that can be answered definitively using key performance indicators such as:

  • Have turn times increased or decreased?
  • Has the percentage of loans that close on time increased or decreased?
  • Has the average number of days from application to clear-to-close increased or decreased?
  • Has revenue per loan increased or decreased?

With answers to these questions, you can start finding correlations between who is leaving and its impact on your business.

3. Motivating Factors Behind Voluntary Turnover

Exit interviews are a great way to find out what factors are contributing to voluntary turnover at your organization. During exit interviews, ask how each of the following factors influenced their decision to leave:

  • Compensation
  • Support staff
  • Pay increases
  • Partnerships
  • Learning and development
  • Culture
  • Leadership and management
  • Benefits
  • Tools and technology
  • Product offerings

By requiring all departing LOs to participate in an exit interview, either in person or online, you gain facts – not assumptions – that you can use to restructure your retention strategies.

4. LO Turnover Segments

By consistently tracking LO termination rates across your organization, you can compare how turnover rates vary by branch, support staff size, tenure, generation, age of branch, and performance level. This can help you better understand how LOs respond to their work environment and what characteristics influence LO tenure. However, in order to make meaningful comparisons, the metrics you use must be calculated the same across your organization.

5. New Hire Performance

Next you want to study the performance of your new hires. Knowing how long it takes new hires to get up to speed and reach minimum production standards month over month will help you assess the effectiveness of your onboarding and leadership.

It will also allow you to make proactive adjustments to the allocation of resources. For instance, if it takes an average of three months for new LOs to start closing four loans per month, you can make shifts across the branch to help offset the potential revenue loss without sacrificing accuracy, quality, efficiency or borrower experience.

6. Knowledge is Power

The data-driven strategies described here will allow you to identify the factors influencing turnover and better understand how LO turnover impacts your organization as a whole. You can further leverage this data by creating LO personas and developing recruitment and retention game plans for each persona.

Turnover is inevitable. But, at the end of the day, data is the key to limiting costly attrition.

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