The Impact of Hiring Average Originators


In the current marketplace, companies are recruiting like crazy in an attempt to improve sales performance. The problem is that hiring top producers is difficult because they are not easily pried loose from a competitor. As a result, companies end up recruiting and hiring middle-of-the-road originators, hoping that CRM systems and marketing will transform the producer’s average sales results. A long-time mortgage industry staple, the “warm bodies” strategy is based on the premise that it is better to hire someone rather than no one and frankly, it has worked in the past when costs were low. However, today there is a more challenging set of circumstances that makes this practice unprofitable.

First, the cost to originate a loan is higher than ever. Factor in the expense of sub-par performance in terms of lost revenue and referral business and the impact of hiring average performers is exponential.

What is the profile of the bottom-tier originators? According to Stratmor, typical producers in this category are 48 years old with more than 20 years in the industry. Their monthly average volume is approximately $650,000 and they generate on average, three units per month. The troubling part of this level of performance is that in the last five to six years, all originators have been paid an average of 22 bps more in commissions. In 2015 the average commission was 104 bps per transaction. So mortgage companies are paying more for sales talent while receiving lackluster production. Obviously, this approach is not sustainable.

Stratmor’s analysis also concluded that the bottom 40-60% of any given sales force is very unproductive and should be replaced. This is a pretty strong statement that senior managers might know to be true but find extremely difficult to implement due to the fear that the remaining originators will not increase their production accordingly. How many loans do the top 40% of originators have to generate to offset the unproductive originators? Actually, it is not as many loans as you might think. Stratmor states that by increasing just two loans per LO per month, a mortgage company can fully offset the entire bottom tier of originators!

Stratmor’s analysis puts front and center the challenge that sales leaders face today. I think it is fairly clear that the old thinking and practices don’t work as they once did. With 2017 just around the corner, there are five critical issues that I believe sales leadership needs to address:

• Sales performance has been trending downward for years as the markets are moving from refinance-driven to purchase money. The peak was back in 2003 and 2004.

• Distributed retail is being outperformed by consumer direct. Stratmor states that average production is 4.8 units per LO per month and consumer direct is 9.7 units per LO per month.

• Salespeople need to attract customers earlier in the buying process because customers research their options much differently than previous generations of borrowers.

• Depending on field managers for recruiting efforts is a risky strategy as the war for talent intensifies. In 2018, the Gen Y generation will be the largest group working and how to attract them to mortgage banking requires a full-time effort that producing managers are not suited to make.

• Producing managers are rarely good coaches and developers of sales talent and have difficulty growing their branches. A shift to non-producing managers and larger branches is necessary and inevitable.