At the MBA conference last week, I spoke with many senior executives at a variety of different-sized lenders about the state of mortgage banking and their concerns for the immediate future. Out of those conversations, two primary topics emerged:
- Many senior managers acknowledge that the refinance boom-let has made them profitable, but they also recognize this surge is temporary and that they must adjust their sales strategies to compete in today’s marketplace.
- Lenders want local managers to grow their branches by recruiting more originators.
I was impressed that managers view the recent interest rate declines as short-lived and that they realize the customer’s home-buying journey has changed dramatically. At the same time, I was surprised that managers were reverting to the outdated strategy of hiring more originators to sustain growth.
After such a difficult year in mortgage banking, it amazes me that the most popular sales strategy is still hiring warm bodies with the hope that they can bring new customers to the lender. In study after study, it is well-documented that our industry depends on less than 20% of originators to generate 80% of the sales volume. The remaining producers generate a small percentage of total sales volume.
I haven’t even mentioned the high cost of unproductive originators on operations and the damaging impact they can have on customer experience in terms of lost referral business. It isn’t a coincidence that sub-par sales professionals often take up a disproportionate amount of a branch manager’s time, effectively sabotaging an organization’s growth initiatives.
One executive at the conference claimed he was going to deliver an ultimatum to his branch managers: “If you don’t recruit more originators, you will be fired.” It seems that the only way to be terminated in mortgage banking is to fail to meet recruiting goals and not whether a manager has developed the current staff. Is it any wonder that managers will hire whoever wants to join them vs. attracting the best talent that matches to their organization’s culture and sales process?
I think I have seen this movie before. It is called Titanic. Similar to the doomed luxury liner’s crew, mortgage managers are racing toward disaster by hiring producers who don’t have the sales talent to generate new business.
The Fatal Flaw of the Producing Manager Model
Expecting managers who produce the majority of the volume in a branch network to also be expert recruiters is a fundamentally flawed concept. Because the producing manager’s volume accounts for the majority of the revenue, adding another originator amounts to incremental revenue at best. The producing manager structure doesn’t really reward managers for developing personnel, especially if they are paid a lot of basis points per loan. Many producing managers view growing the sales staff as a corporate goal, not a personal goal for them.
Senior managers should recognize that a different sales model needs to be in place or they should come to grips with the fact that local managers need a better recruiting infrastructure to ensure that sales candidates are properly evaluated and sourced. Depending on producing managers to grow the company through hiring is asking for trouble. It is no wonder that our industry’s low retention rate rivals that of fast food restaurants.
High turnover isn’t unique to mortgage banking. Other industries that rely on a distributed retail model such as auto, insurance and real estate groups face similar challenges. However, many mortgage industry executives accept it as part of doing business. It doesn’t have to be.
Senior executives who want to achieve long-term success need to take a hard look at their current sales model and ask if it supports continued growth. If the answer is “No,” changes must be made.