WE’RE HEARING last week I wrote about how hard it was to figure out how much and how to pay for loan originators in this market. As the market changes, companies want to continue to attract and retain the best originators in the market, especially those that can consistently generate purchase volume. Yet, companies also have pressure to focus on quality, both the quality of the loan file and the quality of the service provided to the consumer. And finally, there are the new LO comp rules that are further complicating this issue. Finding the balance between these factors is the trick in designing new compensation plans for a new market.
So, let’s tackle the “how much” question first. At Stratmor, we look at a lot of data about compensation and try to understand how loan officers are compensated. What we typically see is that pay differs based on the type of company that an originator works for, with a big difference between those that work for banks and those that work for independent mortgage companies. Part of this difference is also based on the type of originator that you are paying for and to what extent that originator needs to hunt or kill to be successful.
Independent mortgage companies typically employ hunters, meaning that you are compensating the individual for all the marketing functions involved in establishing and supporting the brand in the marketplace (sometimes the brand is the LO), and generating the lead opportunity itself. So, being a good hunter is important, but the best originators are also very good at converting those leads, or making the kill, when they have the chance.
Of course, bank-owned mortgage companies also want hunters and love the idea of generating mortgage volume through such sales efforts in the market. But they also supply leads, or at least typically supply some sort of marketing or ability to generate leads from an affiliated consumer base or from branch efforts. So, these banks can get away with a little less hunting ability and focus more on the ability to kill as the primary job requirement. This drives compensation, as independents have historically paid more for each loan, generally paying 20 basis points more on a per-loan basis, according to our research. This is often to compensate the originator for the additional requirement of finding most or all of their own leads.
Consideration of how much a lender pays per loan is a worthy consideration, but it’s also important to note that the total pay for LOs at Independents and bank-owned mortgage companies has been roughly the same for the past few years. Our surveys reveal that the bank-owned companies tend to do more volume per LO, largely driven by higher refinance volume but get paid less per loan while ending up the same.
Of course, both segments have done well the past couple years as average commissions are up over 40% since 2011. But there is considerable fear from LOs about how their pay is going to change based on market conditions going forward. And changing the compensation plan will increase their level of anxiety.
For the forward looking executive, figuring out how to juggle these factors (pay per loan, fewer loans and the need to have compliant compensation) will be a challenge that needs to be tackled head on. Next week, we will address how you can model these sorts of changes to design a plan that gives your company the ammunition to survive.
Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience, from Fortune 500 companies to startups, including management of two of the most successful mortgage e-commerce platforms. He was formerly with Chase Manhattan Mortgage and ABN Amro, where he was a senior executive during the sale of its mortgage group to Citigroup.