As we move into the last weeks of 2014, our businesses will likely slow down a bit, not that we'll be any less busy because of it. Most of us will be working hard to figure out how well we did this year and making plans for doing better in the year ahead. Part of that process, at least for some of the banks and mortgage lenders we work with, is taking a census of their origination teams.
For our Christian friends who may already be visited by the Christmas spirit, I'm not talking about the kind of census that requires you to put your pregnant wife on a donkey and march back to the town your family originated from, staying in barns along the way. After all, we are electronic these days.
An originator census helps lenders understand the makeup of their origination teams, giving them insight into exactly how their team is working and how it stacks up against other teams in the industry. Because our preliminary data also includes a pretty even mix between loan officers working in banks and those working for independent mortgage bankers, we can also draw some conclusions about the differences between these organizations.
By looking at this kind of information, lenders have an opportunity to fine tune their first string players. In an environment where everything that impacts the customers can trigger a compliance violation, and everyone is competing for the top producers, fielding the best possible team of LOs is in every lender's best interest. So, are they doing that?
In the preliminary results for our 2014 Originator Census Survey, we analyzed the performance data of over 7,500 originators, that are employed by a mix of independent mortgage banks and bank owned mortgage banking companies. The average volume for the institutions in our survey was $2.2 billion, putting them pretty squarely into the middle tier for our industry.
Before I lay this all out, I should point out that Stratmor only shares the complete results with subscribers who participate in the survey. I can, however, share some high level information that is very interesting. Even better, there is still time to submit your own results and gain access to all of the data.
The most telling stat from the survey is that top originators are responsible for the bulk of your volume. This may seem intuitive, but the raw numbers may surprise you. In our business, it's not quite the 80/20 rule, but it's pretty close. The top 20% of a company's originators are generally responsible for 57.4% of the firm's overall loan volume. The next quintile (or next 20% for those who can't remember what a "quint" is) only originates 23.2% (less than half that of the top performers). So, this means that the top 40% are originating over 80% of the volume. The quintile below that originates half of that (12.6%) and the bottom two together originate half of that (5.5% and 1.3%).
So, as the lender looks at their bench of loan officers and works up through the ranks from the lowest producing originators to the highest, every quintile (each 20%) will produce at least twice what the previous one did. We see a similar pattern with overall productivity per loan officer. The top group will produce about eight loans per month, on average, while the lowest will produce 0.8 loans per month (yes, less than one per month).
As you might imagine, the best companies don't keep the lowest performing LOs around very long. Our data bore this out with turnover of the lowest two quintiles (or bottom 40%) at over 40% per year and then falling by half or so for each quintile as you move up the ladder until the top 20% turn over less than 10% of the time.
So, where is opportunity hiding? First off, it's important to know that these averages are not how each company performs. So, the key is for each company to view their own performance compared to others, and learn something about their culture in the process. Some companies appear to hire a lot, cut or lose the bottom tier and have even higher productivity from the top tiers. Others are much more balanced, with few top performers, but more in the middle tier.
It also seems pretty clear that getting those lowest producers to close even one more loan per month will drastically increase company performance, and perhaps make them less likely to leave voluntarily. In 2015, scooping up these lower performing loan officers is pretty easy. They move often and they don't command high incomes. Turning them into star performers is more difficult, but not impossible.
It's a lot more likely that a company can make a poorly performing loan officer a bit better than it is to get more out of a producer that is already hitting high numbers. After all, you have to be careful about putting additional pressure on the top performers, since you really do not want to lose them. But you can put some resources into developing sales plans and sales goals and coach these producers to higher expectations. That can really drive volume, and give you a repeatable process to bring in LOs and make them more productive.
There are plenty of other insights and opportunities hiding in this data. In fact, I will be talking about millennial LOs and their productivity and opportunity at the MBA Independent Conference next month, and will have more insights in future columns as the data keeps coming in. (Oooh, I like data ) So, if you like data as much as I do, consider participating in the survey. No donkey required.
Garth Graham is a partner with Stratmor Group and has over 25 years of mortgage experience.