The latest MBA industry forecast indicates a precipitous 62% drop in refinance volume for 2022. I think that all managers knew this day would come and it has finally arrived. The refinance party is over. The key question for leaders: What strategies will they implement to generate loan volume in a purchase money environment?
Based on my 30 years of financial services experience, these are the top three business strategies management teams pursue when faced with reduced loan volume:
- Improve Cost Efficiency: The first response by leaders is to address expenses. The red pen comes out and all costs are reviewed closely. Items that are often cut are training, traveling and other items that are deemed non-essential. This strategy makes sense because it is easy to implement and can reduce revenue loss. It also makes management look proactive. Unfortunately, a line-item approach to lower volume can make it more difficult to address more systemic issues such as whether the organization’s business strategy matches with the current marketplace. One example is compensation plans. Even so, when cuts are made, senior leaders often don’t take into account the negative impact on employee morale. When cuts are severe, the best employees may jump ship fast — this is never a good thing.
- Address Underperformers: One benefit of downturns is that underperformance issues are more likely to be recognized and addressed. When times are robust, underperformers are tolerated but when interest rates rise, they finally get targeted. Independent mortgage bankers are generally the first to do so; banks and credit unions are much slower to take corrective action even when the market is more difficult. Underperformers can hamper operations and impact the overall business but when marketplace conditions change, management teams will eliminate them.
- Change Leadership: Being a leader in tough times can be risky because senior managers responsible for sales and operations are always in the line of fire. Sometimes companies purge the entire management staff or select just a few individuals to replace. Regardless, someone will be sacrificed to “change” the organization’s performance. Leadership changes of this nature are expected in the year ahead.
Certainly, there are other strategies mortgage banking firms use to provide cover while they right the ship. For example, mergers and acquisitions allow companies time to achieve better economies of scale. Acquisitions can also attract better sales talent, open the door to new technology and provide wider distribution quickly. But if the union isn’t a good fit, there are a lot of things that can go wrong. Company cultures can clash. Management teams can be at odds and good sales talent can leave after their contracts end. It is easy to upset the apple cart when trying to blend companies’ separate strengths.
Rarely, do I see management teams deciding to manage better and hold employees accountable for their performance. Many managers believe this strategy takes too long to execute and worry that it might ruffle the current sales team’s feathers.
In a great Harvard Business Review article, The Tough Work of Turning Around a Team, Bill Parcells, the legendary football coach of the New York Giants, Jets and Patriots, shared important insights about how to lead losing teams to success that are especially relevant for mortgage bankers right now. I highly recommend this article as more difficult times are on the horizon.
Parcells observed, “the challenges that I’ve faced are not all that different from those which executives deal with every day. The toughest challenge I’ve faced as a coach is taking a team that is performing poorly and turning it around.”
In his coaching career, Parcells said he learned, “You have to be honest with people — brutally honest. You have to tell them the truth about their performance — you have to tell them face-to-face and you have to tell them over and over again. Sometimes the truth will be painful, and sometimes saying it can lead to an uncomfortable confrontation. So be it. The only way to change people is to tell them in the clearest possible terms what they’re doing wrong. And if they don’t want to listen, they don’t belong on the team.”
Parcells recounted his process, “After I talked to [the team] as a group and established my credibility as a leader, I began talking to them personally. You’ll quickly see who’s a contributor and who’s an obstacle.
“[Next] we establish a clear set of goals that are within immediate reach. When you set small, visible goals and people achieve them, they start to get it into their heads that they can succeed.”
Parcells also noted how important it is to pick the right people for your team, someone “who understands what it will take to succeed and is committed to making the effort.”
With just a few short months left in 2021, now is the time to take a page from Parcells’ playbook and ensure that your sales team is ready to win in 2022!