Retail Apocalypse Part 2: The Grim Reality of 8.5 BPS Per Retail Loan

At its annual conference, the MBA released more distressing stats for mortgage retail origination. Last week, I discussed the fact that 60% of originators are not productive. This week, I am discussing data concerning profitability. According to the MBA, the retail business line is generating only 8.5 bps in profitability per loan. Other business lines did considerably better with consumer direct and correspondent at 102.6 bps per loan and wholesale at 42.5 bps per loan. The dismal performance of retail, while not surprising, is momentous and a harbinger of disaster ahead. Senior managers are grappling with how to save the business and some are even asking if it can be saved. Last week, Capital One threw in the towel and exited the business. More firms are expected to follow suit in 2018.

The current economics of retail origination simply don’t work anymore. This has been the case for a while. The core issue is that personnel costs have skyrocketed. As management teams already know too well, most lenders are paying their originators on average 125 to 150 basis points per loan. Some lenders are paying more and others are thinking of raising it even further. This doesn’t leave much profit for the lender while the lender is assuming all the risk responsibility and at the same time having to make large technological investments. On top of all this, the financial marketplace is witnessing tighter margins. Is it any wonder that the origination business line is not profitable?

Certainly, mortgage sales organizations can support a few quarters of poor performance, but not many firms can handle weak performance indefinitely. This can spiral quickly into a dire situation for mortgage companies unless something changes.

In my view, the heart of the issue is structural and centers on three drivers: over-compensation; poor first-line managers; and too many underperformers. During consulting engagements, I see this combination often. Some may believe this is specific to a particular company but I believe it is an industry-wide issue. The problem is rooted in these common mortgage industry myths:

  1. Anyone can sell. Just because an individual is an experienced originator does not mean that he or she can sell in today’s marketplace. There are a slew of reasons why the person is in the business. For many, it all started with the refinance boom. This is why 60% are unproductive in a purchase money marketplace. Managers need to recognize that these individuals are not a match for the origination position. No amount of training will transform a poor hire into a great originator. A better solution is to use a structured hiring process to hire sales professionals with the sales talent and characteristics necessary to succeed in origination.
  2. Anyone can manage. Improving another person’s sales results is not easy and not everyone has the patience, insight or talent to do it. But that is a manager’s core responsibility. When managing is done well, originators stay with a company and deliver an excellent customer experience. Everyone wins. Unfortunately, in today’s challenging marketplace, producing managers are charged with getting better results from everyone. This structure is based on the false assumption that a producing manager has the interest, motivation and competencies for getting more production out of another originator. It isn’t happenstance that 60% of originators are unproductive.
  3. Anyone can lead. There is no other topic in business education that is discussed more often than leadership. What is it, who has it and who does not? While everyone from Warren Bennis to Peter Drucker have defined leadership, it is clear that leadership isn’t something that happens automatically once a person has been promoted to a manager’s position. More is needed to lead a sales organization effectively. For those who possess the talent, training can make an importance difference and is a required investment.


While a good manager is someone who can plan, hire and fire and solve problems, it isn’t enough when markets are changing dramatically and employees are unsettled and scared for their jobs. Mortgage banking managers need to be leaders. Leadership is about seeing the future and getting others to see it too. Leaders must convey optimism that their vision can be achieved and that it includes employees.

In mortgage banking, these are the best of times and the worst of times. To be successful in this turbulent environment, it is time to recognize that not everyone can sell, manage or lead. These false assumptions have led us to 8.5 bps and 60% unproductivity.