Crafting a compensation package that allows mortgage companies to recruit or retain the employees they desire has to strike a balance between offering a competitive amount and ensuring it is sustainable for the finances of the business.
In boom times, companies tend to make offers that in the long-term are not healthy for their own interests.
In 2021 for example, Lori Brewer, who at the time was the head of a firm that provided incentive compensation technology, noted that once a certain level of pay has been reached, it is difficult to roll it back.
In the future, companies can try to align the compensation policy with the shift in profitability, but that can be a difficult concept to get employees to accept, Brewer said.
But incentive pay may be the way to go and not just for loan officers, said Laura Lasher, the managing director of consulting firm Worthy Performance Group, and the former president of the mortgage division at Arbor Bank, Omaha, Nebraska.
“I’ve seen it work for not just the loan officers and [their] teams, but also the assistants and the closers and underwriters,” Lasher said. Incentives can help not just with loan volume but with loan manufacturing quality because no one wants to have to buy a loan back.
It’s especially important to get compensation properly calibrated given that staffers have been less eager to switch employers of late. Fewer loan officers changed jobs in 2023, 73,292, compared with 85,337 during the prior year, according to data from Mobility Market Intelligence. Individuals at the higher end of the production spectrum tended to stay with their employer longer, the MMI statistics showed.
For loan officers whose annual volume ranged between $20 million and $50 million, median tenure was three years and eight months. Producers in the $50 million and $100 million range had a median tenure of four years and one month, while those top originators that do over $100 million annually had a median tenure of four years and four months.
Of course, companies have to make money in order to pay those loan officers and teams. They can incentivize employees to develop ideas that help them cut time during the origination process.
“The bottom line, we all know, is volume helps everything,” said Lasher. “So, how can we create the best experience, raving fans, all the time that brings that volume back, that repeat business?”
Everyone working in the mortgage industry knows that, given the lower-volume, high interest environment, changes in structure need to be made. But it’s how that message is relayed to the staff that ensures buy-in.
“People still feel the instability; is that company going to be there? Is this agreement going to be honored?” Lasher said.
Case studies: Certainty Home Lending
Certainty Home Lending, which is part of the Guaranteed Rate family, had to address these sorts of questions when it recently added a number of top producing loan officers from George Mason Mortgage, whose parent company, United Bank, was consolidating its residential real estate finance operations.
Franco Terango joined Certainty approximately one year ago as its CEO, with 36 years in the financial services industry, 25 of those in mortgage, including at Bank of America.
“What Certainty already embodied was just a cultural differentiator in regards to being big enough to matter and small enough to care,” Terango said. “It’s kind of the moniker but it fits so well with where I’m at in my career.”
It was a situation that also helped attract those loan officers.
Several things can attract top performers, and while compensation is part of it, the company must also have a strong value proposition and good technology. Lower on the list of priorities – but still very relevant for attracting talent, is a robust marketing system, a solid product mix and capital markets support.
Certainty, for one, also benefits from its association with Guaranteed Rate.
“A mortgage professional that’s been in the business for a long time understands having…those components and then having a competitive compensation plan, that is ideally the company that you’re going to go work for,” Terango said.
If a company doesn’t have these elements, it can offer a higher level of compensation, but what happens when the money runs out? The loan officer leaves for another originator.
“I would not want to work for a company that was just paying a big bonus,” he said. “They’d have to have those other elements.”
Certainty is constantly looking at what it offers potential workers, and it does keep an eye on recent performance.
“It’s a quid pro quo that we want to deliver on all the things that we’re promising but at the same time, you’re going to deliver a level of performance associated with that compensation,” Terango explained.
Certainty looks primarily at the last 12 months of production but also takes into account the shorter three-to-six-month time frame, which is a sign that in today’s tight environment that the LO has been producing. The company wants to reward that.
“Most originators I talked to are realistic about where [industry] volume has been for the last 18 months and where their volume has been for the last 18 months,” said Terango. “The expectations are different than it was two or three years ago.”
Given industry conditions, the view was it would be easy to recruit, Terango commented. But some loan officers are thoughtful about what they want and they are not simply jumping companies just to chase a paycheck. On the flipside, he knows other people in the business that have chased the money only to discover that the landing spot they choose does not fit the needs of their client base, and they end up leaving within a year because they can’t do business.
Consumers Credit Union
Over at Kalamazoo, Michigan-based Consumers Credit Union, a good compensation plan is a big piece of the recruiting process, said Josh Summerfield, its vice president of mortgage.
“In every conversation I have with potential loan officers that we’re recruiting, they want to know what the comp plan looks like,” Summerfield said. “Having a competitive compensation plan, not just with incentives, but also with the benefits packages is super, super important for us.”
Consumers has a 401(k) program that the company matches dollar for dollar up to 10%, which is generous compared to what else is offered in the market, he said.
But it is also important to have the products and a strong manufacturing process so that the loans close, especially in an industry where most salespeople are paid on commission. Even back office incentives can be based on production targets.
“Because if you can’t get them to the closing table, it doesn’t matter what the comp plan looks like, you’re not going to get paid anything,” Summerfield said. “So, it’s really a three-fold thing for us trying to balance it all out.”
That helped Consumers, especially during the heavy recruitment cycle in the industry.
“It’s just sticking true to our value propositions and the execution side of things,” Summerfield said. “When [we’re] recruiting, it’s the products that we have available, being a balance sheet lender. I’m leaning into that.”
It is those balance sheet products – like a zero-down, no mortgage insurance product, an aggressive construction lending product and a higher loan-to-value investment property loan – that let Consumers stand out in its market.
“Everybody’s fighting for every bit of market share that they can get right now and I don’t think that’s going to change,” Summerfield said. “People are going to take their stabs to try to buy some business with bringing in sales staff.”
Highland Mortgage
Companies use certain business metrics in order to craft their compensation programs.
The pandemic fundamentally changed the economy, which in turn has made it more difficult to hire salespeople, said Mark Milam, president of Atlanta’s Highland Mortgage.
“If you’re going back any further than January 2023, you’re really not getting accurate data for what is possible based upon the environment we’re in now,” Milam said. A typical producer that in the past might have done $24 million a year is now doing between $10 million to $11 million a year at best, and sometimes worse than that, depending upon where they get their business.
“The days of giving upfront money to recruit salespeople over are just largely gone,” Milam said.
Instead of a sign-on bonus or a draw against commission (either recoverable or non-recoverable), Highland is giving incentives based on a combination of metrics, including production and quality.
The salability of the file goes right to the profitability of the company.
“It’s important to have multiple metrics in there, how well they support the culture of the company and participation, especially if you’re a referral base shop as we are,” Milam said. “The days of paying someone on historical production, I think, are a little outdated, because those production numbers are going to be wildly different moving forward.”
However, many potential employees are still operating in the mindset that the industry had in the pandemic or prior days. But they cannot rely on a 2010s through 2022 model.
“When it comes to sales, you got to be a little bit more judicious. We had to learn that the hard way,” Milam admitted. He pointed out that while some people the company hired are historically good producers, they did not have a personal business set up to deal with the combination of high rates and rising home prices that stunted the housing market.
The other issue is that competition for strong staffers remains. Highland recently brought on an underwriter at what he thought was a competitive salary. But a competitor made an offer so strong that the underwriter took the position, and Milam doesn’t blame them for doing so.
“I go back to incentivized pay as being something I’m a big fan of. A right-sized base salary, but with per-file incentives that allow someone to make the kind of money they would like to make, so long as the company is making the kind of money it needs to make,” Milam said.
Arrive Home
While Arrive Home is not a lender — it works with them on providing down payment assistance and alternative credit solutions — it competes with mortgage companies for staff.
Arrive Home just hired a senior loan processor and it is back in the market for more. The first time it posted the position it got 35 applications. Now it got 60 in just the first two days after putting the job notice out, said Tai Christensen, its president.
Part of what job seekers are looking for is the ability to work from home, either full-time or on a hybrid basis. Arrive Home allows for that, which helps it find people who don’t want to give up that lifestyle as their current employer forces them back into the office.
“We also really prioritize trying to achieve that elusive, evasive work-life balance,” Christensen said. “We allow you to work early in the morning and later in the evening to accommodate your schedule, as long as you’re making your time commitments and also meeting deadlines.”
Arrive Home uses a salary arrangement whereas traditionally most lenders have a commission or bonus structure.
While an individual can make more with the latter, especially in the boom times, right now many people are seeking the certainty having a set salary brings, Christensen said.
“Are you working under a commission structure and your pipeline is not as heavy or the volume isn’t there, you’re going reach out and look for opportunities where you have guaranteed pay.”
Arrive Home does pay bonuses and it also allows for the opportunity to have overtime.
But it also offers “vacation reimbursement,” she said. “Each of our employees gets $2,000 per year that you are able to submit receipts for any vacation expenses you may have during the paid time off that you are using.”
Until now, Arrive Home has also paid 100% of medical and dental insurance costs for employees, but rising prices may force it to change that policy.
