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Lenders still need and want high-producing, purchased-focused loan officers.
Even in today’s challenging market, high-producing loan officers remain in high demand, according to mortgage advisory firm Stratmor Group. Recruiting them often comes down to the quality of the offer a lender can make. In its July Insights Report, Stratmor Group Senior Partner Jim Cameron analyzes the industry’s approach to signing bonuses, offering insight into why some lenders pay and others do not. His article, entitled “To Pay or Not to Pay: The Question of Signing Bonuses,” explores how signing bonuses are structured, and how new data and tools can help lenders understand more about the potential of the loan officers they are hiring.
“It’s no secret that our industry is experiencing a very challenging market right now. We are seeing layoff announcements practically every day, and there are already a handful of companies shutting down,” Cameron writes in his article. “M&A activity has exploded as the industry begins to consolidate. We are in a classic downcycle with too many lenders chasing too few loans.”
Despite all of this, lenders still need and want high-producing, purchased-focused loan officers (LOs). Recruiting them will depend, in part, upon compensation. For high producers, signing bonuses have been a big part of the story.
Cameron says that will continue, but more for some lenders than others. For example, independent mortgage bankers (IMBs), and especially large IMBs, are more likely to pay signing bonuses to retail loan officers for several reasons. Signing bonuses do not match up well with the typical bank culture.
“In our experience, IMBs are more likely to ramp up and down aggressively as market conditions ebb and flow,” Cameron says. “They must — it’s a matter of survival. But banks don’t like to operate with an easy come, easy go, hire and fire mentality. It is well documented that banks have lost market share to IMBs and there are many reasons for this. The lack of willingness to pay top dollar for high producers is one of them.”
In his report, Cameron says in his experience, many lenders are philosophically opposed to the notion of signing bonuses. While this may cause them to miss out on recruiting certain high producing loan officers, there are key reasons why they resist the temptation:
In his article, Cameron outlines the most common structures used to pay signing bonuses and how lenders can claw back some of this advance if the loan officer doesn’t perform or gets recruited away. He also looks into the financial considerations for the lender, especially in a market with declining loan volumes. His advice: make your decisions on the basis of better data.
“In the old days, lenders would rely on reviewing W-2 information and screenshots of production information from prospective LOs,” Cameron writes. “Since the LO’s license number is now attached to fundings, there is a wealth of data available to better understand important considerations, such as purchase versus refinance mix, product mix and production volume trends.”
In his report, Cameron also looks at retention bonuses. He says, “As the name implies, lenders are compelled to pay retention bonuses when they feel that an employee may be at risk of being hired by a competitor. On the sales side, this often arises when a high-producing loan officer receives an offer which includes a signing bonus.”
The retention structure may include a combination of bonus and an increase in basis points of commission for a finite period. In many cases, the LO does not want to leave his/her company but has received a sizable offer that is worthy of serious consideration. Since the LO often wants to avoid the risk of switching employers, there may not be a need to match the competing offer one for one.
Cameron explains, “Of course, not every competitive situation results in the payment of a retention bonus. The lender is at an advantage here because they have data on the LO which allows for an informed decision.” Factors considered in payment of retention bonuses include the following:
As one might expect, we are hearing that retention bonuses are on the decline as the frequency and level of signing bonuses has fallen off.
Cameron uses Stratmor data to show how signing bonuses are easy to justify in a market with wide profit margins and high volume. Lenders paid large signing bonuses in 2020 and 2021 and he concludes that it likely made sense at that time. But the current market is quite different. Volumes are down at least 50% for many lenders, and profits have deteriorated such that breakeven may be aspirational at this point. Even so, leaders will find a way to attract the best producers and signing bonuses will be one of their tools.
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