A GENERATIONAL OPPORTUNITY TO MAKE A CAREER MOVE IN MORTGAGE BANKING ORIGINATIONS?
Right Now, just might be the best time in the last 15 years to consider a career change if you are in the profession of originating mortgage loans and/or managing a team of loan originators.
You might be thinking: How can that be? No Way, that makes no sense! Things are too good right now! I am closing more volume than ever!
Counterintuitive? The definition of counterintuitive is “contrary to intuition or to common-sense expectation (but often nevertheless true).” So, hear me out…….
With the Feds projecting to keep rates at record lows at least through 2021. On June 18th, 30YR rates hit an all-time low of 3.18 according to Freddie Mac. And the latest aggregate forecasts (all have been raised each of the last 2 quarters) from the Mortgage Bankers Association/ Freddie/Fannie for 2020 is Total Originations coming in at 2.65 trillion and 2021 at 2.30 trillion. Adding that to the originations of 2.38 trillion in 2019, we are in the middle of the 2nd best 3-year period of total originations of 7.33 trillion. That was only surpassed by the 8.80 trillion originated between 2003 – 2005 (highest on record).
There are projections that there are over 3 million homeowners with mortgages with an accumulative balance $4.2 trillion, that would benefit from refinancing if rates stay at or below 3.25% for the 30YR. A high probability to say the least.
And, I have not even brought up the positive outlook for purchase originations over the next few years. More first-time buyers are coming to the market at a rate never seen before, and only one in three of the buyers under the age of 35 own a home today. Plus, we have more existing homeowners that have more equity than anytime over the last 20 years. They will likely become repeat buyers as more inventory becomes available driven by the expected increase of new homes from builders. Additionally, the pandemic has started a shift of renters wanting to leave urban areas to more rural areas were the cost to purchase is more reasonable. Sum all that up and we are at a “once in a generation” type of origination market very similar to the early 2000s. And today Mortgage Industry is without that era’s speculative buying, low housing equity, risky products and subprime credit factors. The mortgage origination market is more diverse and as financially stable as it has been in the last 20 years. Just look at the growth of the Broker/Wholesale Channel and the Consumer Direct channel over the last few years. And there still is enough business for everyone.
I state all this, to clearly show you that most of the transitional risk that are involved in making a career change in today’s mortgage industry are largely being mitigated by this “once in a generation” type of origination market that we all are enjoying.
Transitional risk is simply defined as “the income lost or delayed due and during your transition”, and will that be a cost or an investment in yourself to improve your future business which also can be defined “what has been the opportunity cost for you to make the change and will you return of investment on that money and get a better return long-term?”
Still you say, “I am busier than ever” or “I am making as much money as I have ever”, or “I am happy, and I have everything I need” or “my pipeline is full”. Those might all be truthful statements.
Now let’s look at that the “Buyers’ Market” for “You the Mortgage Origination Talent”– those would be the entity’s that originate mortgages (and no, not all companies are not a good fit for you individually). Mortgage companies have just come through an extended period (2016-2019) with intense margin compression, rising cost to manufacture the loan and rising interest rates. Then this spring, we have a pandemic and the industry experienced market liquidity and capacity issues. Now, it is summer of 2020 and it is great to be in the mortgage business! Most of today’s mortgage companies are better off financially today than any time over the last 5 years. This is driven by greatly improved margins resulting in profit per loan at its highest level in a decade. Overall profits are rising for most companies. Just look at Quicken. They are considering an IPO (the last 2 mortgage companies to consider an IPO was Stonegate in 2013 and loanDepot in 2017). Do you think Quicken’s profits look good right about now and for the foreseeable future? The answer is yes. And depending on the valuation of the IPO (Estimates at 25BB), it could and should prompt other large independent mortgage bankers to follow suit. Additionally, it should create an uptick in M & A activity due to the increase in privately held mortgage companies’ valuations. And this just might be the best time since 2006 to sell a privately held company or for a Hedge Fund to maximize its return on its investment in the mortgage industry. They are only following the Sell High-Buy Low mantra, just as you should be with your revenue producing talents.
Yes, there are a lot of mortgage companies that are meeting and, in some cases, exceeding their originators’ expectations, wants and needs. And if you are getting your expectations, wants and needs met, then this might not be that “once in a generational opportunity” to make a move. If so, it makes total sense to stay where you are at today and maximize your income opportunity. Don’t even consider the “what ifs”.
But, (always a but), there is group of originators and sales leaders that are not having their aspirations being fulfilled. The definition of aspiration is a strong desire, intense longing, or ambitious aim. Yes, today you may or may not have all or some of these: good product menu, fair market pricing, above average compensation, effective operational support, efficient technology, competent marketing, reasonable cultural fit and quality leadership. And if you said “yes, I have some or all of those and but there just might be something better for me”, you are not having your aspirations fulfilled.
Most successful people have a “Next” on their horizon. That can be the next level of origination volume, better operational and technological support, more diverse product menu, a more competitive pricing model, superior compensation plan, better work/life balance, industry leading marketing support, great cultural fit and great leadership. Once you define your “Next”, are you in the right place for that to happen as quick as you want it to happen? Is it the most effective and efficient way for you to get there? Will you be encouraged and supported to that “Next”?
Remember, Sell High-Buy Low. Your most valuable asset is You and Your Talent. And the most common method of valuations of that talent is measured by your and/or your team’s origination volume and potential profitability which equates to an asset of present and future revenue and profit for any mortgage company.
Just as an NFL wide receiver coming off a “career year” in catches, yards, TDs and overall productivity, they will demand an elevated contract, so should you right now. It is in your best interest that you get your talents acquired at a high price point. This is true of any professional athlete in any sport and the same is true in Mortgage Banking Originations. (I can’t wait to see what Patrick Mahomes contract will be.)
A sizable percentage of you are having some of the best closing months you have ever had. (And if you are not, you should have probably already called me to make a move.) So, this is an “once in a generational opportunity” to see if you are maximizing your aspirations and your career. The final answer is 100% in your control, if you are willing to be open to that possibility. Contempt prior to investigation will leave a person in ever-lasting ignorance.
Now, go contemplate your “Next” and call back that Sales Leader, Independent Broker and/or Recruiter that has been building a relationship with you with the intent of recruiting you, as it might be to your benefit.
What exactly does being different and adapting to the new mortgage buying environment look like for the loan officer in the future?
After posting this article: Real talk: The mortgage industry is changing, and some of you won’t make it, written by Jason Frazier: https://www.housingwire.com/blogs/1-rewired/post/43272-real-talk-the-industry-is-changing-and-some-of-you-wont-make-it?eid=311686869&bid=2090489 on Social Media, I was recently ask the following question: “What exactly does being different and adapting to the new mortgage buying environment look like for the loan officer in the future to you Chuck Cowan?”
A very complex question with a lot of variables and influencers (A very complex process with a lot of different players involved (Real Estate, Mortgage, Title, Appraisal, Insurance etc.), an ever shifting regulatory environment, constant changing compliance landscape, rapidly advancing technology, increasing manufacturing cost base, the constant moving perception of the real value ($$) of the cost of services provided (fees, commissions etc.), potential new entrants(Amazon, Facebook, Zillow etc.). And this response is written with an attempt at an extremely over simplistic explanation that provides an overview with a slant to the purchase transaction not the refinance transaction (as we are entering a prolong period of declining refinance volume- refinances are estimated to only be 20-22% of the 1.6 trillion overall total loan volumes in 2018 and declining further in 2019). Of Quicken Loans industry leading first quarter 2018 volume of $20.5 billion, only 25% was purchase transactions. So, they have not demonstrated that their technology has given them the ability to win the customer in a purchase transaction at the same conversion rate of a winning a refinance customer.
But what I hear, see and read about, it is a change in consumer shopping and buying behavior regarding the whole home buying process. These fall into three basic categories: 1. 100 % Self-Serve (smallest segment Est at under 20%), 2. Partial Self-Serve (largest segment Est at over 55%) 3. Desired Professional Representation (middle segment Est at over 25%). Those are today’s estimates and they are changing with growing regularity, with the first two segments growing by far the quickest. Consumers are going online over 98% of the time to start the process from day one, but it is how they are finishing that process, that is what is in play or up for grabs. The latest numbers say that over 70% still do and have the desire to speak with a local professional. A supposed accountability partner per say to help guide the consumer through all the moving pieces. Now when (not if) will that number change, and to what degree up or down is the million-dollar question. Who will have the influence and become the advocate for the consumer is what every player in the whole home buying process is trying to win. Centralizing and/or bundling as many of those different pieces for a simpler process will have an ongoing edge in that battle. The main disrupter is the consumer’s shopping and buying behavior regarding the home buying process, not just the companies that provide all the home buying services. Machine Learning, AI and Blockchain will all play a major role in the customer experience and the reduction of manufacturing cost of a loan. But they all are in early stages of integration. In the end, technology is supposed to make it a more efficient transaction, provide a quicker loan process, a better customer experience and save money for all involved. And this should mean that there will be less overall number of loan officers doing more transaction per loan officer as they are more efficient, involved in a shorter process on a different compensation model providing a better customer experience. That is a big ask but not impossible, and it is the direction the home buying process is headed.
A simplistic overview, historically you use to contact a realtor based on a referral from friends and/or family and start looking at homes they selected based on the information you provided. Then you would select a home and then start the mortgage shopping process, identify a lender and apply. And the realtor would have a huge influence on who you initially contacted. The truth is, that sequence of events was always backwards as your realtor would give you a guesstimate of how much home you could afford or best-case scenario you would do a pre-qualification with a lender based on the realtor’s recommendation. Then they “the realtor” would select the homes you looked at, based on an educated guesstimate and/or pre-qualification- but it is still a pre-qualification or guesstimate not a preapproval with a guaranteed commitment. That part has changed drastically with the amount of quality information available today online.
Today, most consumers start researching homes online through the Zillow, Home.com, Realtor.com or some similar type of site. Then they start to want to know “how much can I afford” and start the mortgage investigation process with or without selecting “that one home” and they do this with or without a realtor and/or a mortgage professional. Who has influence with this consumer? And who will lead them through the home buying process and become their advocate? All of this is now up for grabs, those professionals that have this influence will be the survivors and the future stewards of the of the home buying process. One example of this change in behavior, it is bringing into questions the cost of the real estate commission. Is a 6% or 7% a fair commission for the realtor? Previous they had control over almost all the information, but now they do not have control over all that information. As it relates to mortgages, using online rate quotes and calculators are useful but not binding. When does the need of professional advice become relevant?
Technology is a game changer, but it is all going to be driven by the consumer shopping and buying behavior, the consumer dictates the rules going forward. This is as it should have always been. In the USA, we use to have a manufacturing driven economy but now we have a consumer consumption driven economy. Consumers want Mercedes, Apple like quality coupled with Amazon, Uber like pricing. That just will never work financially for the companies (Real Estate, Mortgage, Appraisers, Title, Etc.) providing all these different fragmented services, so at some point the consumer will follow basically one of two paths: One is where you get a concierge level service with high quality creating superior customer experience or they chose the second path which is the lowest price point and the do it yourself experience. I am sure there will be many other options that attempt to blend this divergent, and they will come and go (some will stick) but they will basically be influence by either of these overarching themes. Quality experience or price point will be the influencers. Yet, no company has been able to provide the absolute best quality at the lowest price point in any consumer consumption driven industry.
As for the different platforms and business models, there will be a lot of options as there has always been. Some will excel, and others will falter but at the end of the day, companies and loan officers will need to constantly re-invent and redefine their value and justify their contributed cost of the home buying process as will other players involved in the overall process.
I do know the consumer today, are more fickle and demanding than ever and this is due to the information available they can access. Whether they truly understand and can apply that information to insure the best possible transaction based on their desired preference has not been proven. Especially in a transaction as complex as the home buying process. This is the good news, there is still the need for local professional advice and guidance. Depending on the consumer’s desired level of service, will dictate which path they choose to follow as a home buyer and having a clearly defined value will be of the utmost importance to the loan officer to win that consumer’s trust and hard-earned money in the form of fees and commissions. Interesting times we are in and as in all major industry shifts, huge opportunities lie ahead for those that are prepare and have a willingness to adapt.
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Loan Officer Recruiting Should Not Be Modeled After A Recycling Plant
I have read a lot of articles recently about the quality of loan officer hires. There has been a trend over the last few years for companies to recycle low end originators.
Think about this, with an estimated 1.1-1.3 trillion dollar mortgage originations market in 2015 (which is flat from 1.1 trillion in 2014) there is an estimated over population of loan officers of upwards of 35% in 2015. At the end of 2014 there were approximately 398,716 loan officers licensed in the NMLS which is down only 2% from 404,239 in 2013, but total mortgage originations dropped from 1.85 trillion in 2013 to 1.12 trillion in 2014, a 64% decline (according to IMF). Those numbers just do not match up! No wonder according to the Mortgage Bankers Association (MBA), the 2014 average productivity per loan officer was at a dismal 2.4 loans per month or under 30 loans a year. That cannot be acceptable moving forward.
More importantly is which of these loan officers are really doing the originations? According to the STRATMOR Group’s 2014 Originator Census Survey, the top 20% of loan officers originates 57% of the overall loan volume. The next 20% originates 23% of the overall loan volume. The next 20% originates 13% of the overall loan volume. So that means the top 40% of all loan officers originate 80% of the volume and the top 60% of all loan officers originate 93% of the overall loan volume. That means that bottom 40% of all loan officers only originate 7% of the overall loan volume. The monthly average productivity of loans closed per loan officer correlates as well as the top 20% average 8 loans per month, the 2nd 20% average 3.2 loans per month, the next 20% average 2.0 loans per month. The bottom 40% does less than 1 loan per month.
Additionally when we will look at the 1rst year turnover ratio of these different groups, the bottom two tiers (40%) have in excess of a 40% turnover ratio (why not 100%), the next 20% tier up has about a 25% turnover ratio, the next 20% tier has under a 15% turnover ratio and the top 20% tier have a less than a 10% turnover ratio (the top 10% have under a 5% turnover ratio). Locating the needle in the haystack is a term that comes to mind.
Now do the math, the bottom 40% minus the attrition of 2% of the loan officers that left the NMLS system in 2014 results in a potential of a 38% over population of loan officers still in the industry today. Therefore, even taking the high estimate of a 1.3 trillion dollar mortgage originations market in 2015, this is only a 2% increase in volume which still results in a 36% over population of loan officers in the industry today.
Turnover is not only expensive; it has many other negative consequences. Now let us look at some of the true cost to you and your organization
IT HURTS:
- YOUR SALES CULTURE
- EMPLOYEE’S MORALE
- YOUR COMPANY’S BRAND & REPUTATION
- THE MANAGER”S PERSONAL BRAND & REPUTATION
- BECAUSE OF LOST SALES OPPORTUNITIES
- PRESENT AND FUTURE CUSTOMER RELATIONSHIPS
- CREATES A SUBSIDIZED SALES CULTURE, BY SUBSIDIZING THE LOW PERFORMERS WITH THE BETTER PERFORMERS
- WEAKENS YOUR VALUE PROPOSITION FOR THE BETTER PRODUCERS
Why has the industry had such a slow attrition rate? The answer is a Subsidized Compensation Plan and Unwillingness to Right Size Loan Officer Headcount. By that I mean, if you are willing to pay an inflated commission plan to below average performers that do not want or need to make a great living, why would they leave? Let’s go back to the MBA’s 2014 industry’s averages; productivity per loan officer was at 2.4 loans per month or under 30 loans a year. And the average loan amount nationally was approximately $235,000.00. That means the typical loan officer closed 6.8 million in closed volume which generated an income of between $47,600.00 @ 70bpts up to $68, 0000.00 @ 100bpts. That is at or above the medium income level for most of the individual states in the United States. There is a problem of over paying the lower producing loan officers. The exception to this is anyone in their first 18-24 months in the industry. The average age of the loan officer today is over 54 and companies need to make the continued investment in building a future sales force with the younger generations. By stopping the recycling of loan officers in the bottom tiers, companies would then have the money to invest into their present loan officers (you should already know their strengths and weaknesses) that are high potentials, make quality offers to the better loan officer candidates in the market and invest into their future sales force (building from the ground up is not cheap). It is simply having the right allocation of investment dollars aliened with the greatest potential return.
Secondarily, if companies just want to continue swap and exchange the bottom half of the loan officers’ talent pool, those candidates will continue to accept the 90-180 day guarantees and forgiven draws until they run dry. How many times have you heard this “yes this loan officer candidate is marginal, but with my leadership and our value proposition we can help them improve their production by 50%.” Zebras just do not lose their stripe no matter what we want to believe.
Unless companies start to institute minimum standards that correlate with the appropriate compensation levels for the generated results, the problem will persist. The root cause is unrealistic and/or overstated sustainable company growth goals driven by a headcount mentality that fosters a reactionary hiring culture. What happened to on boarded volume as a metric? Hiring three15MM a year producers will always be better than eight 6 MM a year producers. Quality not quantity should be the driver of your loan officer recruiting.
The solution is to manage out the bottom 25% (less than 2 units a month) of your loan officer now; examine the next 25 % (under 3.5 units a month) for your high potentials and invest in them and create a plan to help them grow their business 30% per year over the next 24 months (that will get them to over 5 units a month over the next two years). Target only the loan officers that reside in the upper 50% to 90% of the industry based on monthly productivity and monthly origination volume (there are approximately 160,000 loan officers within this talent pool). Clearly define your ideal loan officer candidate target profile within this group. Align your company’s value proposition to make a difference to these candidates on how your company can help them grow their business moving forward.
Lastly, build relationships with top 10 % and try to create a top of mind rapport with them, as in this candidate driven market, this group totally control’s their own destiny and you just want an opportunity to engage with them if the occasion arises. Let your competitors fight over all the other loan officers, as it will keep them distracted while you build a higher quality sales team that will want to stay with you. Quality candidates stay with quality companies if they are underwritten and aligned correctly.
Are you with the right Employer in Mortgage Banking moving forward in 2014?
Have you as Mortgage Banking Professionals seen or heard these types of proposals or pitches from Company’s Internal Recruiters and/or Business Development Managers?
“We are Leading Mortgage Company that is hiring Entrupernial Branch Managers and Loan Originators that desire to be with an Organization that has a leading Competitive Compensation Model that pays 100 basis points or higher and that is coupled with Operational Excellence that has best in class turn times, Competitive Pricing and we are Loan Officer Centric, if so please contact us @______.”
Please Beware of these Pitches, as the housing market has unfolded in 2014 it has become impossible to lead in all the areas that the above pitch describes. Everyone has the same 3% compensation cap imposed by the CFPB. Yes there are many companies that have models that are trying to circumvent that truth, yes you can increase your basis point commission but then it has to be built into the price of the mortgage offered to the end customer. So sacrifice price or basis point commission, it is one or the other. Another grey area is “Pick a Pay” models that pay various compensation to their loan officers but more importantly to you individually will be how does your company manages the “Pick a Pay” model without committing possible customer steering without creating a violation according to the CFPB. Now there is even more news about having personal liability when your company is found guilty of such a violation. The following is from “Inside Mortgage Finance” just this past week-
“The Consumer Financial Protection Bureau’s supervision and enforcement jurisdiction is huge. In addition to large depositories, it also has authority over many nonbanks that were not previously under federal regulation–including all that offer, originate, broker or service mortgages.
But even for institutions accustomed to U.S. government oversight, the bureau’s exam approach is a new wrinkle. Unlike the prudential regulators, which have typically conducted far-reaching, cyclical exams using a team of examiners well-known to the institution, the CFPB is focusing on testing narrower slices of an institution’s business at more irregular intervals, choosing those most likely to cause consumer harm. The CFPB’s strategy also differs from state exams: Instead of just looking at loan-level results, the bureau also wants to test systems to make sure they don’t allow or encourage undesirable outcomes.
The bureau’s approach to enforcement is also novel. It has the authority to go after individuals as well as entities. It can require that penalties include monies for harmed consumers. And it can use its subpoena-like Civil Investigative Demands powers to dig up evidence of potential violations by individuals and companies outside its supervisory authority.”
Looking at the last 8 quarters of the “Net Cost to Produce a Loan”, it has nearly doubled. Here is the most recent rolling 8 quarters:
- 2nd quarter 2012- $3,224
- 3rd quarter 2012- $3,353
- 4th quarter 2012- $3,813
- 1rst quarter 2013- $4,182,
- 2nd quarter 2013- $4,207
- 3rdquarter 2013-$4,573,
- 4th quarter 2013- $5,171
- 1rst quarter 2014- $6,253
The “net cost to originate” includes all production operating expenses and commissions, minus all fee income, but excluding secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread. (Per the MBA)
So having the ability to sustain 150, 125 or 100 basis point commission plans over the long term is neither feasible nor realistic for any company that wants to make money making mortgages. The following is from the Mortgage Bankers Association:
“ WASHINGTON, D.C. (June 10, 2014) – Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net loss of $194 on each loan they originated in the first quarter of 2014, down from a reported $150 in profit per loan in the fourth quarter of 2013, the Mortgage Bankers Association (MBA) reported today in its Quarterly Mortgage Bankers Performance Report.”
“ Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $8,025 per loan in the first quarter, up from $6,959 in the fourth quarter of 2013. First quarter 2014 production expenses were the highest recorded in any quarter since the Performance Report was created in the third quarter of 2008.”
Fee income from secondary market income came in at 277 basis points in the 1rst quarter 2014 compared to 268 basis points in the 4th quarter 2013. That is only a 29 basis point increase. I do not think your employer is in the Mortgage Banking business to lose money and I hope you do not think so either
Interesting part of these costs is that historically the Loan Officer Commission and expenses accounted for 60 % of the personnel cost and operations accounted for 40% of that cost. Today those numbers have flipped and now it is operational support that accounts for 60% of personnel expenses. Compliance has had an effect on that and will continue to do so. As CFPB and other regulator exercise their regulatory powers those cost could continue to increase. And that is not counting the fines that will be levied against those that want to try to work around the regulations with practices that are not clearly within the limits of what the regulators want. And yes, there will be some of those players as there has been historically due to revenue and cost concerns. How and in what manner the CFPB will conduct its investigations and levy its fines is still to be determined, especially for non-depositories companies as they have no historical reference to determine that pattern.
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As to operational support and performance, has your employer gone through the audit process with CFPB? The more scrutiny the CFPB applies to the loan process and as they discover violators due to misinterpreted regulations, all companies are operationally at risk to change. Having the proper controls in place to be and remain compliant will only add additional operational review staff, processes and cost. The present process is broken and has been for years. The customer experience is not a measurable priority in the mortgage industry and no that does not mean loan officer centric. A process that serves the loan officer serves the loan officer, as they say ‘You can only serve one God at a time”.
Until there is industry and regulatory reform relating to the type and/or amount of documentation that is required to get a loan and/or that documentation is simplified through technology for a better customer experience, the process is still hinder by two major issues that the customer has felt for the last 25 years. Those two customer issues are: The time it takes to get the loan approved and close and the amount of documentation required getting a mortgage. It is a lot easier to buy an $80,000 car than an $80,000 condo. Technology and having the financial ability to continually invest in technology moving forward will be paramount to survival for Retail Mortgage Lenders. Technology has changed every industry at such a rapid pace once it is accepted mainstream into that industry. Having a vision of how to make the mortgage process more Customer Centric instead of Sales, Process and Task centric will be a game changer and having to pay top dollar to your sales force will not compete for that investment dollars long term. This is a low margin business where profits and losses are measured in basis points
So there is increase pressure on mortgage companies to right size expenses, processes and personnel or they are faced with options like mergers, being for or closing their doors. The economy is not helping with low wages for millenniums and student debt keeping first time buyers out of the market. The aging boomers preferences have changed and the buy up market is not nearly as robust as in previous downturns. There is no premium being offered nor paid for Retail Mortgage Platforms in today’s market and the belief that it will work out as it has in the past just might not hold true this time around. It is a buyer’s market for those platforms and those that have the cash and financial ability will be the winners. Consolidation upwards of 35-40% is what I am continually seeing, and let’s face it there are just too many loan officers in the business today for the amount of loans that are to be financed. The mortgage market is undergoing seismic change, so if a company that offers the pitch, you might just want to run away as fast as you can. “Being too good to be true” is a very accurate statement for today’s mortgage market. If you are looking to change employers, I suggest you look for a Financially Stable Company that is Customer Centric that offers Broad Product Capabilities and is fairly and competitively priced and is a Compliant Operational Lender with a Sound Legal Department that pays a Fair Compensation. Looking for too much can be very costly over the long run. The rest is just noise!
Regulation Nation: Q1 Mortgage Origination Costs Continue To Rise, Production Losses of $194 on Each Loan
Time is running out on the small to medium size mortgage lender who are not financial stable. There will be a market share shift back to the larger lenders as they have the ability to fund their origination platforms.
Retail Mortgage Banking- Future Disruption
From 1992 till 2006, Mortgage Lending experience a consolidation that was un-presentenced as the top 5 lenders’ market share increased to 60%. Since 2010 we have seen a de-consolidation to the point that only 5 of the top 20 single-family mortgage originators in 2006 have remained active in the market today. There has been this rush to fill that vacuum by the independent mortgage originator that are back by Venture Capitalist, REIT’s and private money and now the top 5 only controlled 40% of the originations. Now that is a seismic shift in 8 years, but is that model going to be able sustain itself? The answer is playing itself out in 2014, as we move forward into a totally purchase dominated market, that with the latest estimates of being a 1.0 Trillion Market.
The larger lenders enjoy a cost of funds advantage and then they are able to spread their future costs (e.g., new technology, customer acquisition, market share acquisition etc.) and spread those cost across a higher volume of mortgage transactions, therefore reducing their average operational costs relative to smaller competitors. On the servicing side, direct servicing expenses for servicers of fewer than 2,500 mortgage loans have been 13 percent higher per loan than direct servicing expenses for servicers of more than 50,000 loans. Servicing is the one asset that has a tangible value and companies have historically sold the servicing to offset originations expense in a downward trending market. And yes a few of these independent mortgage companies have ventured to build their servicing portfolios since the financial crash of 2008, but now they face the daunting task of selling off those assets to fund their origination operations. According to the latest data available for these independent mortgage companies, is that their operating expense for cost to produce a loan are at best at the breakeven point or even worse that they losing money on their loan originations business. The MBA latest data reflected that the independent mortgage banker cost to manufacture a loan in the 4th quarter 2013 was above $5,100.00 per loan, and with a shrinking mortgage market, companies that have that high of cost to produce a loan will no longer be able to compete moving forward. Look at this way, if it cost $5,100.00 to manufacture a loan and they have relied on compensation models that requires 100 to 125 basis points to attract their loan originators, how does the accounting in that model work? There are only so many basis points in each loan It does not, is the simplest answer.
What is the newest trend; it is mergers and acquisitions talks among these players. The consolidations of these companies will accelerate over the balance of 2014 into 2015. There will be a divide among those that are financially strong and those that are financially weak and over the next 12 months it will change the landscape for these independent mortgage companies in the mortgage industry.
Also concerning to the mortgage industry is the aging of its own workforce nationally. The continued aging of the mortgage sales professional will not be well suited to attract the newest consumer power group with the largest buying capacity, the X’s, Y’s and millenniums. The X’s, Y’s and Millenniums are more comfortable with technology and are more willing than any group ever before, to independently conduct their own research of financial services products than we have seen in the last 40 years. With the average age of 53 years old for the Loan Officer and 57 years of age for the Real Estate Agent there is huge disconnect with the future customer. Sadly, I am not seeing a lot of training nor mentoring programs to attract this age group into the industry.
Quicken Loans has established its place as the lender that can technologically manufacture your loan and provide a positive customer experience and Wells Fargo has built a distributed retail customer base, have trusted national brand and have established a cross sell model that is centered around the mortgage to last through this disruption, but who else is in that category? The large depositories like B of A, Chase and Citi, are only here to serve their bank customer base and have demonstrated distaste for the mortgage industry. There are also hybrid sales models that have been coming to market over the last couple of years utilizing the efficiencies and lower cost of a call center model combined with a distributed sales force model. These models are hybrid between a consumer direct and a retail model. The consumer direct channel has demonstrated to be very cost efficient model but has been historically reliant on re-financing mortgages not pursuing purchase mortgages. Will there be a dominate player that takes these channels and successfully combined them into a future sales model that works? I would have to say that is still to be determined.
Therefore the independent financial service company must re-think their sales process and their service model or they face a huge threat to be replaced by technologist that will figure out a better customer experience and loan delivery process that will work for the consumer of the future. If the big data that companies like Zillow, Trulia and others are gathering today does not alarm you that they can build a first to the consumer model and influence the sale process and you do not think that they are looking at ways to further disrupt the home buying and financing process, then you do not understand their original intend. Just ask Realtor.Com and the National MLS’s. That is why they were created, funded and have experienced the growth they have had in such a short time.
The Trusted Advisor has a role in the future mortgage and financial services models but not at the compensation levels that have historically been in place. The Mortgage Banker, the Real Estate Agent, the Insurance Broker and the Personal Banker have seen their best paydays and the acceptance of that needs to happen or they risk further role reduction moving forward.
As for Community Banks, there has not been in recent memory the opportunity they have had to further their penetration into mortgage than they have enjoyed since the crash of 2008. But with the regulatory outlook moving forward and the compression of earning they too will be undergoing a sea of mergers. If the banking crisis of the 1980s and early 1990s is our guide, the industry should expect merger activity to spike to 20-year highs between 2014 and 2018 — further diminishing the number of community banks left standing to compete in the mortgage lending model.
Among numerous problems the industry faces, that one that lies at the forefront is the fact the financial services industries lost the trust of the American public with the onset of the Financial Crisis in 2008 and even today have not regained that trust. Companies’ that are creating different customer experience and a simpler loan delivery process that builds trust in the process with clear disclosure will be the model that works in the future.
In 29 years of my working in the mortgage banking industry, there have never been so many different pressure points on this industry to change as there are today and how companies choose to respond in 2014 and moving forward will define those that are left standing to provide their valuable service to their customer.
Loan Officer Recruiting now demands More of the Art than the Science
This market demands companies to adapt their recruiting efforts to the present environment. Hiring is now becoming more of the Art than a Science. Historically this has shifted between which side of the Ying and the Yang the hiring needs of Mortgage Lenders are at any time. This is largely influenced by factors such as the market and the talent pool and more so today than ever in the history of mortgage lending by government regulations among other influences. This is not a normal shift of going from refinance market to purchase market; it is a whole lot bigger than that. We are looking at a different set of models that are developing. Yes Branch Managers need to have a strategy, a process and maintain accountability and consistency (the science), but now more than ever in the last 15 years they need to know exactly how to Identify, underwrite, qualify and close (the art) the best candidates that they engage with. Even the most experienced Branch Managers have developed ineffective recruiting and hiring practices over the last 15 years for this new market and need guidance back to the art of recruiting and how to position themselves as the buyer throughout the recruitment cycle. With all the newly placed regulations and the disruption of the mortgage lending landscape there will be a lot of under or unqualified candidates seeking new positions within the Mortgage Banker Driven Model as suppose to the Mortgage Broker Driven Model. Just as there will be High Volume Producers that may be such a disruptive hire that it will be the undoing of that Branch. Understanding what Recruiter’s Fool’s Gold looks like, will just as important as disseminating who they need to let go of with their current loan officer staff. Retention starts at recruiting and the art of recruiting will end at future retention. Over 65% of Branch Manager’s have never had formal recruitment training with a Qualified Recruiting Coach and therefore lack the advance recruiting skills to be more than an average recruiter no matter how many goals and systems you put in front of them. And yes technology has its advantages, but the art of Recruiting Loan Officers is a voice to voice interaction transitioning to a face to face experience and finalizing in a person to person process. People work for people and that adage has not changed and until Artificial Intelligence is fully developed, that will not change. How to fully engage your candidate and truly underwrite their ability to fit within your company’s culture and to succeed with the products, pricing model, operational support, technology, the tools provide and local leadership will be crucial to any individual branch’s long-term growth and success. If you want to learn more please contact me @ chuckcowan@ccowan.com or 321-363-4384.
Strategic Talent Aquisition Recruiting Training – Why a “START” Mortgage Recruiting Coach?
Why a “START” Mortgage Recruiting Coach?
The value within the START Coaching Model is the positioning the manager into deep understanding of their present state or condition of their sales team recruiting, help them to develop targeted “live” recruiting strategies that will be providing them measurable progress in obtaining the desired results by have a positive impact on their consistent recruiting efforts. I will break it down as follows:
Recruiting at the most basic level is a six step process:
- Research and Source Suspects
- Prospects Phone Screening
- Candidate Selection via Underwriting and Qualifying
- Business Modeling with Candidates
- Offer and Closing
- On-boarding
Now breaking that down into a strategic process;
Recruiting Requires the following Processes and Techniques:
- Well defined Job Analysis
- Strategic Recruiting Plan
- Consistent Recruiting Process
- Primary and Secondary Sourcing Techniques
- Scripted Screening and Qualifying Techniques
- Systematic Interview and Underwriting Process
- Business Plan Mapping Process and Compensation Analysis
- Pre-closing plan and Closing Techniques
- On-boarding Plan
If having consistent, accountable impact on your recruiting is what you desire, then you need to develop and use the above processes and techniques to be the positive recruiting change for your team and your company.
Not only are most managers not properly or professionally trained in the “Art of Recruiting” (“art” being defined as an enhanced skill at doing a specified thing very well, typically one acquired through practice), they also do not have a proven strategic process to follow, and these are just two of the areas of concern that I see in the recruiting models Mortgage Companies are using in the industry today. Creating a solid foundation by having a Strategic Recruiting Process that the individual manager will use day in and day out is essential to providing the framework of continued recruiting success over the long term. Developing a Recruiting Pipeline with well defined stages of the recruiting cycle that is maintained daily and consistently measured will create the fundamental change needed to impact recruiting results. And that is where a Strategic Talent Acquisition Recruiting Training Coach can provide the differentiation to land the most talented competitors to your team. Lateral Loan Officer recruiting is one of the more difficult aspects of recruiting in the Mortgage Industry and having a coach that can provide you with strategies, processes and techniques, just might help you to get the right candidates to cross the finish line with you.
SO “START” RECRUITING!
Will Retail Mortgage Platforms Weather the Perfect Storm in 2014?
With the compression of originations and closing in the mortgage industry as demonstrated by February 2014 being the slowest month of closing in the industry in 14 years, it begs the questions how are all the privately held independent mortgage companies prepared to survive the upcoming 6-9 months of brutal business conditions? According to the MBA, the average cost to manufacture a loan for this group in the 4th quarter of 2013 was over $5100.00 not including employee expense, the average profit was $150.00 per loan and those numbers are due to significantly change in the 1rst quarter of 2014 and not to the positive side. With that being said, can companies continue to lead their recruiting efforts by paying 80 to 125 basis points to their loan officers? CFPB has just start the in-depth regulating these non-depositories and small community depositories and their business practices. And if the last year has proven anything, is that these companies could be looking at an additional 30 to 40 basis points cost per loan in compliance expense on top of their present cost to produce. So let us look at what could be a very realistic scenario in the 2nd and 3rd quarters of this year, if company spends say over $5600.00 or higher to produce a loan and you lose money on a per loan basis, how do you continue to pay 80 to 125 basis points in commission? I do hear a lot of companies have been to market and have started selling off their loan portfolios to generate revenue to offset these expenses, but how long can that last? Makes no sense, to sale off your portfolio assets to run your sales business and operate at a loss. This 1.1 billion dollar market is not going to grow by any sizable amount according to every report that I have seen over the last 45 to 60 days. What about those organizations that are owned by a hedge fund or REIT, I wonder how secure they really feel? Hedge Funds and REITs are not keen on not making a return. The business is due some major disruption and as LOs how do you feel about that? What are your risks? As recruiters and Managers recruiting LOs how do you feel about that? Can you really tell a candidate that there is a long term future with the company you represent? All I know, after 30 years of recruiting in this business the numbers that I see and hear just will not work moving forward and something will change in these business models. I am trying to create an argument for one player verse another, as I do not know who will and who will not be the fittest and strongest to survive, but I am more interested in future thought moving forward.
Buyer’s Relationship Skills and Recruiting the Trusted Advisor of the Future
Buyer’s Relationship Skills and Recruiting the Trusted Advisor of the Future
I have been recruiting in Distributed Retail Sales in the Financial Services Sector for 29 years and I have seen it undergo many significant changes in the last 10 years. I have seen more companies’ employ Internal Recruiting Teams today, that has certainly met all or some of their needs and will continue to do so. And the advancement of Sourcing Technologies has had one the largest impacts on how companies recruit in the Distributed Retail Sales Model. The rise and the slow decline of job boards have served their purpose in this advancement of technology in recruiting. CRMs that have become fully engaged across the company’s whole enterprise have had as much impact on recruiting as any other piece of technology in recruiting. The largest asset in any Distributed Retail Sales Model is the role of the Trusted Relationship Advisor otherwise known as a Banker, Loan Officer, Financial Advisor, Insurance Agent, or Real Estate Agent. Realizing, whether you agree with my last statement or not, the Talent Pool in these particular professions has been under siege for years. Just look at the average age of a few of these: Banker- 45, Financial Advisor- 50, Loan Officer- 53, RE Agent- 57, Insurance Agent- 56. That is an age range of 45 to 57 years of age and that age bracket is coming to the end of its dominance of consumer buying power. As the new consumer moves into the leading role of buying power in there industries, do we really think they will interact and buy from this age of advisors at the point of sale? I am not saying that a lot of these Trusted Relationship Advisors today have not or will not make the transition to being the perfect Relationship Manager, as they will.
But looking to the future of these critical roles that companies will need to hire, they need to re-think what these roles will be and what are the appropriate skills, talents, work history, relational competencies and emotional intelligence that will be needed to fill these roles moving forward. One concern that I see, do the companies and their recruiting strategies really understand the role of these future individual advisors? They should, as the role absolutely mirrors exactly what the recruiter of these professionals should possesses themselves to be successful, being a trusted relationship recruiting advisor to any of these trusted advisor candidates will be crucial to alignment of the talent with the right opportunity. Contrary to popular believe, just because you can master sourcing the Identities and profiles of these candidates via Social Media, LinkedIn or any other technically savvy way does not mean you can build long-term relationships. Talking with thousands of these trusted advisors across many disciplines over the last 29 years, the one thing that is most apparent to me is that the top trusted advisors will take their time to build a relationship with a recruiter and both recruiter and candidate understand that being in that relationship has mutual value and at the critical moment that individual advisor candidate decides it is time to explore opportunities is the sweet spot for both parties. Not any sooner or later than that time the trusted advisor decides that it is that time. Becoming the buyer of talent instead of the seller of opportunity will be crucial in that dynamic. Technology will never develop the emotional intelligence that will be required to build that intimate relationship with these trusted advisors and if your recruiting staff is not well coached in relationship skills, both building and maintaining those relationships, then you are missing a significant part of the talent pool in these industries going forward.
Why Loan Officer Recruiting and Retention are One in the Same
Why Loan Officer Recruiting and Retention are One in the Same
Outside of regulations, talent is the second crisis facing the Mortgage Industry today. There are huge advantages in hiring talented employees, who already know the local market and some examples of those advantages are:
Talent is the one sustainable advantage you can get in this business. Any other advantages like operations, products or pricing are not really an advantage since the competition can catch up in those areas. Thou those three areas are critical in having a strong value proposition in recruiting. Knowing who the players are and where they work provides valuable insight that cannot be had anywhere else. Such hires know how their former employer thrived or struggled in areas like operational efficiencies, attracting and retaining customers and expanding wallet share with existing clients. Those items will be of great interest to your company as they create an advantage in the market. Hiring talented employees from rivals that serve in revenue-producing roles is ideal. Mortgage Companies that rank talent acquisition and talent retention are undoubtedly far more successful and profitable than their competitors who don’t. You have to win with better execution, and that always comes down to people.
And those advantages will be used against you, if you and your company do not support a robust recruiting culture. So it is critical that companies take steps to make sure that highly regarded loan officers and valuable managers stay put. And that starts at recruiting!
Moving Forward
Growth in the mortgage market has been slow to recover since the past recession, but we expect activity to pick up in the next several quarters as the housing market gains steam. Mortgage supply has increasingly shifted towards government-sponsored enterprises, which have received the highest number of applications over the past couple years and have originated the largest number of mortgage loans. These institutions are likely attractive to consumers due to their lower
rates in comparison to private institutions. Mortgage demand has seen some shifts by income, gender, race and ethnicity over the past few years, which could be due to multiple factors including denial rates and lending rate offered. High-income individuals, males and some minority populations have shown the largest increase in mortgage demand over the past few years. As lending standards continue to ease, we expect demand to pick up across other categories and spur further growth in the mortgage market.
Richmond Fed’s Lacker And The Fed’s Mortgage Favoritism (Not Helping Mortgage Purchase Applications, Only Investors)
Low Rates and Declining Purchase Volume- A Good Read!!
Last Time this Happened, the Housing Market Crashed
Home builder KB Homes, when it reported earnings for the quarter ended August 31, revealed that the average price of the homes it sold rose 9% to $327,000. In the West, prices jumped by 20% to $579,700. With these juicy price increases, sales in dollars were up 7% from a year ago. But the number of homes it sold actually declined by 2%. That’s how the housing market in America operates these days – even at the high end that KB Homes serves.
At the same moment, the Commerce Department reported that new home sales suddenly jumped by 18% in August from July, and a breath-taking 33% from August last year, after having been in the doldrums or declining for months (PDF). But the margin of errors are elephantine (±16.3% and ±21.7% respectively), so a grain of salt comes in handy.
With such an enormous…
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