The Mortgage Industry\’s Madness Strategy 



In my consulting practice, many mortgage executives who I speak with are very concerned about the rising cost to originate a loan in today’s marketplace. According to the MBA, the cost to originate has mushroomed to $8,500 per loan. Making a profit is difficult when originators are being paid large sign-up bonuses and high splits. In my opinion, even more troubling is that companies still believe that hiring more sales staff will fix their production woes.

Recent Bureau of Labor reports show that non-bank employees increased by roughly 7,000 in May 2018 from the previous year’s statistics. Frankly, the industry’s hiring spree defies logic considering the significant challenges ahead.

In the big picture, housing finance is experiencing a number of conditions that have not been seen in a while including housing inventory shortages; rising interest rates; full employment; and stagnant wages. These are not temporary events, but are underpinned by fundamental shifts in the marketplace. Adding more originators and staff amid this upheaval seems suicidal, especially if producers don’t perform as hoped after they have received upfront money and higher splits. The only loser is the lender in this equation. This continuing hiring frenzy just pushes out the breakeven point for the lender which in many cases, is well over a year. This is no way to run a mortgage company.

For argument’s sake, let’s assume that a mortgage company has committed to technology enhancements. The question is will the improvements change the lender’s costs significantly enough to really make a difference? Probably not when sales personnel expenses account for 55% of the cost to originate. The reality is that technology investment can reduce costs but not enough.

I know there are many managers who are hoping that there ultimately will be an app that completely replaces the originator and their costs but I don’t see that happening.  Consumers still want a guide when making what will typically be one of the biggest investments of their lives.

What can a management team do? In my opinion, plenty. Here are seven strategies I’ve used to help lenders successfully transform their sales results. They are:

• Cull the sales staff of low performers and correct the inconsistent originators.

• Require managers to hold originators accountable and implement meaningful standards.

• Restructure the sales organization to match customer contact points and timing preferences.

• Invest in changing sales behaviors. Install real training and coaching efforts that reinforce new behaviors. Avoid flash-in-the-pan efforts that don’t work like sales rallies and one-time events.

• Use structured and analytical hiring criteria when recruiting sales candidates. Prohibit hiring based on “your gut feelings.”

• Move away from hiring based on quantity and commit to hiring quality sales candidates, not just who is available. People do matter and the right salesperson in a position can make all the difference.

• Install scorecards at the manager and originator levels to ensure that a process is followed vs. leaving originators to figure out what works. A scorecard should match to the company’s goals.

All of this is doable. But, change must start at the senior executive level with managers who are not afraid to ask difficult questions and are willing to listen to the answers. In my experience, sales professionals recognize that the market has changed and they are looking for a leader who recognizes that too. Thriving during tough conditions requires fresh thinking and making hard decisions. Using old strategies that are no longer effective doesn’t make sense and is the very definition of madness.