One of my colleagues recently observed that mortgage bankers are facing difficult decisions regarding the fundamentals of their business. Caught between a rock and a hard place, these firms are trying to implement critical fixes while generating volume and revenues to fund the necessary changes — not an easy task! According to my colleague, the best strategy for these organizations is the corporate version of being “open while renovating.” This concept is when a restaurant or retail store is kept open while the business is under construction. The store may not look attractive but the owner still needs to generate income while they are updating their business. This is the exact challenge that lenders face. The world of retail sales is changing dramatically and making significant changes is costly. Lenders must decide whether to make minor changes to buy more time or bite the bullet and address the bigger issues necessary to transform their sales organizations.
More often than not, I see lenders opting for short-term tactics that they hope will buy them more time such as rolling out more niche products (the tried and true strategy); installing a new LOS system; and desperately hiring originators from their competitors.
There is rarely a discussion of installing accountability (getting rid of underperformers who are losing money and coaching/developing their current LOs); improving their marketing to consumers on why committing to a long-term mortgage makes sense today; or hiring rookies to match a redesigned sales organization.
I think that it is time to move from being focused on incremental change to tackling more fundamental issues. One look at Stratmor’s mortgage banking peer reports and it is clear that personnel expenses have gotten out of hand. There are not enough good performers and way too many underperformers. When the cost to originate is composed largely (estimated at 55%) of personnel expense, it is obvious that compensation needs to be ratcheted down and productivity increased. There is no question that these are tough decisions for senior managers. In my opinion, industry topics that need to be addressed include the following:
• Should the retail sales structure still be a loosely made franchise system with no real sales controls in place as far as response times and customer satisfaction?
• Should the LO be the brand or should the lender be it?
• Should 100% commission be the compensation structure anymore? Is mortgage banking like a McDonalds with built-in turnover or should mortgage banking do something different where renting originators is not a core growth strategy?
• Should distributed retail be reinvented completely?
It is clear that lenders who fail to address these issues will increasingly be out of touch with the dramatic changes in the marketplace. The reality is that adding a new LOS or CRM system will not be enough to change a company’s cost structure. While being “open while renovating” is certainly a feasible way to handle these challenges, deferring fundamental issues is not a smart strategy for future growth. If you believe retail origination is at a tipping point, incremental changes are not enough to make a difference. There is a reason that Quicken and United Wholesale are number one in their respective markets — they were willing to change the fundamentals.