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The Bottom 5% of Loan Officers Don’t Cost Us Anything!

Updated: Feb 16, 2023

February 13, 2023

by Julie Piepho, CMB, Principal at BlackFin Group

Here we are, 45 days into the middle of the year, and the housing cycle doesn’t appear to be any more promising than on January 1. We continue to have high inflation, shortage of housing inventory, higher interest rates than this time last year, the refinance business has all but disappeared, and mortgage leaders are looking to build sustainable mortgage teams in 2023.

Right sizing has been happening within mortgage companies (and other non-financial services companies, i.e., Amazon, Google) for the last 2 quarters and are still happening this quarter. It seems however, that the rightsizing is often in the operations/home office functions of a mortgage company. Unless a mortgage company is a consumer direct platform or built to do only refinances, the mind-set often is that loan officers don’t cost the company any money if they bring in a loan once every couple of months.

I would like to de-bunk this line of thinking or reasoning as these bottom 5-10% of loan officers that do not produce 3 loans a month, do cost the mortgage company.

1. These loan officers cost the company in benefits and salary (depends on how you interpret loan officer compensation). The time and actual cost involved in keeping these loan officers on payroll is a real expense.

2. What is your actual cost per loan officer/employee – do you know? A large regional client recently axed a chunk of top producers who were not nearly as profitable as the average loan officer because of the number of concessions they continuously asked for over the last 6-12 months.

3. The loan officer that only produces 2 loans every quarter or so takes a toll on processing, underwriting and secondary marketing, to say the least. They haven’t kept up on the latest developments in products to the consumer and expect these departments to cover for them, so they won’t disappoint the consumer. I was talking to an operations manager the other day and they were telling me about the time it was taking to resolve the issues on a loan a loan officer who only had done 2 loans in the last 5 months. It definitely wasn’t going to get quick approval; the agents weren’t understanding why the delays and it won’t receive a high customer satisfaction score.

4. New training and improvements or new projects are totally lost on these loan officers as they don’t remember what the basics are. Adoption rate for these loan officers will be low and possibly drag down the project and add increased cost.

5. The biggest cost for these loan officers is the cost of morale. The existing employees see these loan officers, that perhaps are still here because they are the legacy loan officers and “we just can’t cut them loose” are the ones that really do get the favors and it just doesn’t do any good for the existing employees – be it sales or operations – to complain – as it will never change. Leadership needs to step up and do the 90/10 rule, at least in the sales organization, and then perhaps again, do it again. What is the loan officer profitability number needed by each loan officer to break even? How long can a company afford to keep them on their payroll?

It is tough to cut salespeople, when the possibility is they might land a new account. What is their track record? Are they being coached weekly? Are they disciplined about their calls? If your company is just a place to stay to bring in 6-10 loans a year, it might be the time to look at the expense these loan officers are having on your hard expenses and your company morale.

All loan officers should have a business plan with the amount of volume they will originate and close and where this business will come from. If they can’t produce this plan, I think you have your answer.

Julie Piepho, CMB, is a Principal Consultant with BlackFin Group in the Mortgage Strategy Practice. Julie is nationally recognized as a Mortgage Strategy Consulting expert with over four decades experience leading and coaching sales and operations teams while in executive roles at Cornerstone Mortgage, Norwest Mortgage and Wells Fargo Mortgage. She holds the prestigious Master Certified Mortgage Banker designation from the Mortgage Bankers Association.

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