Retail Mortgage Banking Part I: The Recruiting Process = Over Promise, NEVER Deliver.

The relationship between Loan Originators and retail lenders can be summed up in one word: DISTRUST. Spend more than 5 minutes talking to any loan originator discussing their current or previous employers, and you will learn very quickly how deep the distrust is – but why??

In this short blog series we share a detailed summary on each of the founding pillars that the retail mortgage banking house of cards is built on – and most importantly, why the entire retail channel will erode and crumble in the coming years as the value of the retail lending model decreases due to sharpening margins, digitization of underwriting, and streamlined loan fulfillment. These market trends are already shifting the power downstream from the large retail lender to the individual loan originator who owns the actual relationships with their referral partners and consumers.?

In the first part of this blog series, we explain how retail mortgage banking recruiting contributes to the distrust culture!

Retail Mortgage Banking Part I: The Recruiting Process = Over Promise, NEVER Deliver.

The distrust between retail LO’s and their employers starts at the very beginning of their relationship – the recruiting process, which is driven entirely by overpaid salespeople (“recruiters”) who are incentivized to get LOs signed but who have no long term stake in the success of the LO, no vested interest to ensure that any of the upfront promises made to that LO during the recruiting process are fulfilled, and zero skin in the game about whether the company retains the LO long term or not. As a matter of fact, most retail lenders employ contract recruiters, who actually financially benefit from repeated turnover!?

If you want to drive a behavior, you pay for it – and the majority of retail mortgage lenders regularly choose to pay recruiters based on “quantity” (which defines success as the LO’s prior year production multiplied by a commission percentage paid to the recruiter within 30 days of getting the LO onboarded). When a recruiter’s “finish line” is the LO’s hire date, how much do you think they care about what happens after that point? Here is a short sampling of some of the tactics recruiters use to get a loan originator to join their company:?

• PRICING: Recruiters commonly show LO’s pricing during the recruiting process that is very good and they talk up “consistency” with their pricing being competitive. This dog & pony show is simply a new take on an old trick known as the “bait and switch.” LO’s regularly fall for this, unfortunately. The LO looks at the pricing, compares it to their existing company; the pricing is of course substantially better than their existing company, leading the LO to have an elevated level of frustration and resentment toward their current company. Unfortunately, this never ends well for the LO; not long after making the transition to their new mortgage company (and oftentimes even on Day 1!), the company starts padding their margins, and in a matter of a month or two their rates are usually equal to or worse than their previous company. After all, someone has to pay for that hefty headhunting bonus they just paid their recruiter.?
• Pro Forma: A pro forma is a visualization tool used by recruiters to show LOs how much money they would make upon joining their company. The numbers in the pro forma are simple and based on projected expenses, loan production, margins, and other information gathered upfront during the recruiting process. This is another area where LO’s should see the smoke & mirrors from a mile away. For starters, when a financial tool as sophisticated as a pro forma is generated by a recruiter – not an accountant, finance specialist, or someone in the actual accounting department that manages profitability and expenses – the pro forma is unlikely to be based on reliable information. They usually paint a rosy portrait, which similar to the pricing comparison (above), leaves the LO feeling resentful towards their current employer and motivates a shift. Unfortunately and inevitably, in their first 6 months after opening shop at the new retail lender, most LO’s experience previously undisclosed expenses like “branch reserve,” “loan loss reserve,” “regional allocations,” “pricing exemptions,” and other nickel and dime expenses.?
• Promises: Most folks know and understand the definition of insanity (doing the same thing over and over again, yet expecting a different outcome each time). Yet unfortunately, LO’s continue to fall for these promises from recruiters time and time again. Recruiters' promises range from overselling how many ops team members will be allocated to the new LO, to how “exclusive” coaching offerings will transform their businesses, to how dedicated marketing support will take the LO’s business to the next level, and so on. Why do originators fall for these empty promises over and over again? It’s simple: they want to believe that one of these mortgage companies is going to finally do the right thing and deliver. All they can do is hope – their only alternative is staying at whatever mortgage company they are currently with and settling for average.?

Please check back next week for Part II of this blog series that will focus on how retail mortgage bankers use misinformation, fear, and manipulation to prevent loan originators from leaving their companies.?

Contact Information:

Anthony Casa

Email: [email protected]