This week, the NFL kicks off on Thursday. Yes, Thursday. I know it used to be Sunday, but now we have to play football a lot more days each week so that Americans can get their fill of watching grown men pound themselves unconscious. Actually, the move to four-day-a-week NFL is likely a move to give couch potato football viewers a chance to play fantasy football more often.
You see, fantasy football is the process of each fan being able to draft players to be on their team, and then hoping the players perform when the real games start. In a lot of ways, we do the same when we try to build successful teams in mortgage banking. We pick out folks we want according to their most recent statistics, and hope they perform as well this year as they did last year. For a lot of reasons, that is not necessarily a way to be successful.
Most mortgage industry managers probably feel that the way they manage their businesses is pretty straight forward. You recruit bright people, train them well, give them a giant compliance manual and warn them that one breach of a compliance requirement is grounds for dismissal. Even in the NFL you get plenty of chances before you get suspended (for example, a Denver Broncos wide receiver was just suspended four games for taking "speed" at the Kentucky Derby. Maybe his concussed brain thought he was supposed to run against the horses).
There are a couple of problems with this approach. For one thing, we keep hiring "experienced" loan officers because we think they are already trained and come with a built-in base of business, basically recycling the same base of aging loan officers, who move from company to company for perceived better company support or better pay. This is like dumb football teams who keep bringing in free agents just to find out that they are anything but free. The most successful teams keep bringing in new talent and they keep their costs low and stay competitive on the field. The New England Patriots are a great example of this when they are not bringing in murderers from the state of Florida (why is it always Florida?). The challenge is that all this movement is very unproductive.
As an industry, this sales attrition, which averages 30% per year according to our data, means you are constantly training and retraining on your process, and perpetually incurring recruiting and ramp-up expenses for new hires. It's hard to build a good team when you keep replacing a big group of the players each year.
So, there are two approaches to tackling this: one is being sure to understand the value of each performer and have a plan to keep the good producers you have today, and the other is to begin the process to recruit and retain the new workforce of tomorrow.
So, we have this aging, non-millennial workforce who experiences high attrition. We need to understand what makes up this workforce, and how valuable they really are.
At Stratmor, we are in the process of completing an LO Census to help lenders identify who their top producers really are and how they compare to those working in other companies. In this way, we will create a blueprint for those that are trying to create a plan to add talent to their team. Sort of like Mel Kiper without the weird non-moving hair and the obsession with vertical leap. You see, the value of a mortgage lender is largely intangible — in large part based on the quality, depth and sustainability of the sales force. However, lenders often don't understand the characteristics and composition of their originators versus peers and therefore can't manage for specific outcomes.
For example, what is the average productivity of your top 20% of producers versus peers? What about the bottom group of LOs? We see sales forces where the production is evenly spread, where the performance is clustered around the mean. This can be a stable group, but perhaps there is something about your sales culture that prevents the breakout performers. We also see companies with high attrition and a small group of high performers. This may be a more profitable approach, the hire and weed out approach, but only if the impact to the bottom line makes the attrition worth it.
And most importantly, we are figuring out tenure and performance by age. In this way, we are able to begin to isolate whether companies are doing a good job in bringing in new blood, and whether that blood will end up spilling on the field or shaping up to be the lifeblood of the future of the company (It's been a long time since I used a good war metaphor and I was tiring of the football comparisons).
In fact, companies are beginning to realize that it may be better to bring in younger and fresher talent and be prepared to train and nurture than simply recycle the same old loan officers through their company.
Now that we know what we get with these employees, we need to figure out what to pay them. Loan officers are like football players — they don't always believe in loyalty, and it takes a nice compensation package to keep them motivated. In our business, we like to say that "you pay the right amount to the right employee at the right time." It makes good sense. It's a management fundamental that ensures that your organization hires and retains the best talent while simultaneously controlling costs and justifying compensation to your stakeholders.
To answer the question, we really need to know what everyone else is paying these folks. In the NFL they have a salary cap, and we should have the same discipline about how much we can afford to pay mortgage staff too. In our shop, we get to that data through compensation surveys, where lenders from across the country answer questions about how they're compensating employees from every part of the company.
This is how we know that 90% of underwriters are currently receiving incentive compensation in addition to their base salary, even though that incentive is still a low part of their overall compensation. It's also how we know that LOs at independent mortgage companies made, on average, 25% more per loan than bank loan officers. And it's how we know how companies are beginning to include quality metrics in pay, such as loan application pull through and even customer satisfaction.
Over the past few weeks, we've been talking about millennials, those youngsters who came of age about the turn of the century and who one day soon will make up the majority of our workforce. If a lender wants to be successful tomorrow, knowing how to deal with millennials is something they'd better figure out today. If only it was as easy as it sounds.
So what do we know about millennial mortgage professionals? Not enough. At least not yet. There are not many mortgage professionals under the age of 35 and their college experience may have included a lot of football games and big fat student debt. But it does not include many degrees in mortgage banking and they are not likely to naturally flock to our industry.
Next week, I will discuss some approaches on how to bring this type of originators into our industry — how to bring in this new talent — and thereby build your sales force for the present and for the future. But doing that without good data would be as hard as drafting a fantasy team without the help of your friends at ESPN.
Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience.