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Are Your Loan Officers Productive?


We were recently in Dallas, Texas, which just experienced some sketchy weather.  How’d you like to be walking out of Sizzler after eating lunch and see this coming at you?

Dallas/Forth Worth Tornado CloudWe were recently in a small Midwest mortgage company performing a Mortgage Banker Risk Assessment (MBRA) Review.  The company was a “garden variety” mortgage bank with a net worth of around $1M, originating retail loans through one small warehouse line and selling loans best efforts to three investors.  Unlike many small mortgage banks, the CEO/Owner was not an originator; he managed the company.

 One of the key findings we uncovered from the interview was the average number of loans each loan officer funds monthly.  The company has 50 loan officers and the Company funds an average of $5M or 25 loans per month (average loan amount ~ $200K).  Essentially each loan officer funds one loan every two months.  Best case scenario, each loan officer might generate $3,000 in gross commissions per loan, splitting it $1,000 for the shop and $2,000 for the agent.  Each month the loan officer generates $1,000 and the company generates $2,000 plus an additional $950 per transaction in fees. The Loan Officers were pricing loans off the investor net price and the Company was not deducting a corporate gain on sale.

My thoughts after the interview were:  I hope these loan officers have another job or a spouse that has a high paying job.  And why wasn’t the Company deducting a corporate gain on sale before deploying pricing to the Loan Officers?  We haven’t completed the financial analysis yet, but with the amount of Loan Officers and the cost associated, profits (if any) had to be slim. 

We realize that many loan officers are struggling to originate at the levels they did several years ago.  The market and products/regulations have change dramatically, making it more difficult to compete and generate commissions.  Many mortgage professionals have left the industry.  I expect the mortgage bank we visit to have the 80/20 rule whereby a small number of loan officers originate 80% of the loans.  Most of the 50 loan officers probably need to exit the business, either voluntarily or involuntarily. 

My report will recommend management to do two things:
1.     Create production and performance standards for loan officers and include the standards in the employment agreement.  The standards should include monthly closed loan production and gross revenue minimums.  There should also be pull through and quality standards. 

2.     Management should develop reporting tools to accurately measure each loan officer’s performance against these standards.  More importantly, management needs to enforce the standards. 

3.     Ensure existing and new loan officer hires have a business plan on how the originator will generate business.  Review the plan annually with all originators and quarterly with the low producers. 

Mortgage bankers can’t survive without loan originations.  Loan originations create the opportunity to generate revenue through loan fees and secondary market gain-on-sale.  Retail mortgage lenders need to hire, nurture and support loan officers that are driven to originate high quality loans and generate commissions for themselves.  A mortgage banker ought to measure loan officer performance and eliminate the ones that can’t meet the policy standards.  This strategy will help to ensure a mortgage banker will earn profits with minimum risk.

C. M. "Corky" Watts, CMB

Cameron Watts, CMB