What Can We Learn from March Madness?

I love March Madness. The games are exciting, upsets happen often in the early rounds and dark horses rise to the top. This year has been no different. Even though my Terps did not even make the big dance again this year, I was enthralled with Mercer coming from nowhere and making a name for its program. Could they be the next Butler? On top of it all, that the Kentucky vs. Wisconsin Final Four game was one of the most thrilling basketball games I have ever seen. With 7 seconds left, Aaron Harrison made a three-pointer to beat Wisconsin 74-73. It was a near carbon copy of his game-winner last weekend in the regional final against Michigan. It was every bit as big as the 3 he made the game before that to help Kentucky take the lead for good in the Sweet 16 against Louisville. While Harrison’s achievement was incredible, even more impressive was that Kentucky’s starting line-up was made up of freshmen —rookies.

Kentucky’s freshmen line-up hasn’t been seen in a title game in 22 years. With everything on the line and the stakes high, rookies were being tasked to deliver in the biggest spotlight of the national championship. In a game of such importance, the coach had selected players with talent who were willing to follow his winning system. Can we apply Kentucky’s approach to mortgage banking?

In last’s week’s blog, “Would Warren Buffett Invest in our Industry?” I discussed the dismal fourth quarter results for independent mortgage bankers. The year ahead does not look to be much better. When you consider that 99.9 % of mortgage companies’ sales staff are experienced and veteran originators (an average age of early 50s), now is the right time to consider investing in rookies to achieve better results. What risk do sales organizations have when current originators only average two units per loan officer (according to the latest MBA report)? As any manager knows, this level of performance does not constitute a sustainable business.

So, why are managers so reluctant to hire rookies? The most common reasons I hear are: it takes too long to break even; our business is too difficult to teach; and customers want to deal with someone with gray hair. I would argue the facts say differently than these tired excuses.

1. Our research (QFS) shows that when an experienced originator is hired from another company, once the guarantee payouts and ramp-up time are factored in, the time and money investment in training a rookie is not much different. Furthermore, rookies trained by a company will stay 35% longer than a pirated loan officer. This seems like a win for rookie programs.

2. When managers state that the mortgage industry is too complex and can’t be taught, facts show that the rookies have a better pass rate for the mortgage licensing test than supposedly experienced originators. Another win for rookies.

3. Finally, when managers state that customers want experienced originators, they are confusing sales knowledge with years in the business. As our research shows, customers have a low tolerance for originators who convey incorrect information. As the CFB’s latest report shows, customers are unhappy with poor service and incorrect information. Experienced originators aren’t doing a great job in this category either.

In my view, with our experienced originators delivering such poor results, isn’t it time to adopt a different approach? This is a leadership issue that says everything about who is running the company and the sales organization. Doing the same thing over and over when it isn’t working is the definition of insanity according to Einstein. Welcome to the insane world of mortgage banking!