The Rise of the Zombie Mortgage Banker

A recent National Mortgage News article, “Ripple Effects,” observed that a new era in mortgage banking has emerged and that conventional wisdom no longer applies. While everyone can cite today’s challenges such as rising interest rates and low housing inventory, it seems management teams are still relying on old strategies that are no longer effective such as hiring more originators despite shrinking volume and compressed margins.  Whether a company is large or small, hiring your way out of a difficult market doesn’t make any financial sense and is the reason why so many firms are losing money. This is truly a “zombie apocalypse” moment in mortgage banking where “walking dead” sales groups are prevalent.

Today’s environment isn’t even a normal purchase market as in years past. We are experiencing the triple threat of a dramatically different buyer’s journey due to the internet; the delay in marriage and household establishment; and the current dominance of order-takers in sales organizations that haven’t had to sell in a long time.

It should be common sense that increasing expenses by hiring originators and paying higher guarantees to marginal producers is a potentially fatal strategy for a company. This is especially detrimental when the cost to originate is $8,500 per loan, an amount that hasn’t significantly declined even amid the latest technological developments in our industry.

If the present cost to originate isn’t enough to alarm senior executives, the grim reality is that average production in sales organizations is 2 units or less per loan officer. Adding more marginal originators to the mix doesn’t make any sense. Stratmor’s research has shown for quite a while that 40% of originators account for 80% of the total volume. The bottom 60% of loan officers are not profitable and need to be addressed. A decision needs to be made to either identify the originator’s issue and fix it or terminate the individual. During consulting engagements, I see this situation every day.

A sure sign that this strategy is trouble is when companies have to sell servicing just to stay afloat because origination income is not enough to support new hires. This quickly can become a vicious cycle. Eventually, the die has been cast where hiring is a game of diminishing returns that fails to turnaround production.

In order for companies to effectively address the current challenges, senior managers must first admit that hiring more warm bodies will not correct the situation.  Managers must focus their efforts on recruiting higher quality sales candidates who have the sales talent needed to succeed in origination; who are willing to improve their selling skills daily; and who can deliver a customer experience worthy of generating repeat business.

When management teams tolerate such a large group of unprofitable originators in their sales force, there is no technology that can fix this situation. Obviously, there is something else going on that shows that hiring managers do not know how to select and evaluate sales talent that can win in today’s marketplace.

When you consider that the top 5% of loan officers account for 20% of the total volume in the industry (Stratmor), it’s easy to see just how intense competition is for great producers. Something has to give.

In my view, there are three factors that senior managers should consider to improve results:

• Instead of making head of sales responsible for hiring a certain number of originators, link hiring benchmarks to a productivity number. This would address the issue of hiring warm bodies.

• Failing to hold managers responsible for their sales force turnover is a key mistake. When no one is penalized for hiring mistakes, it conveys that it doesn’t matter to the organization when it really does. There is no coincidence that companies with low turnover are the most profitable.

• Lack of accountability for originator’s daily activities is another pitfall. If no one is holding originators accountable, what message is that sending to the sales organization? Ensuring accountability is a key managerial responsibility.

I could go on but you get the picture. It is time to be asking the hard questions and making changes to set the stage for long-term success.