Loan officers can expect signing bonuses to stay but decline

Although thinner margins will drive down loan officer signing bonuses, they remain a key part of lenders’ plans to find talent, according to a new report from Stratmor Group.

In a profession where personal branding is valued as much, if not more, than corporate affiliation, it’s no surprise that mortgage companies use bonuses to recruit best producerssaid Jim Cameron, senior partner at Stratmor and author of the report. Annual loan officer turnover is between 30% and 40%, with average terms of three to four years.

“Given that high-yielding LOs will always be in demand, and that the ‘free agent mentality’ of many LOs won’t be going away any time soon, signing bonuses will continue to be part of the mortgage recruiting landscape for years to come. come,” Cameron wrote. .

But growers shouldn’t expect the same large quantities issued during the warm market that started two years ago. When retail margins in 2020 and early 2021 ranged between 150 and 200 basis points, “it was not uncommon to see signing bonuses in the range of 75 to 100 basis points on volume, and very large volumes on top of that,” Cameron noted.

“These ‘monster signing bonuses,’ as one lender recently put it, were paid during this period but could be financially justified given the margin and production levels,” he said.

By comparison, 2018 and early 2019 saw profit margins in the range of 40-50 basis points, with signing bonuses typically in the range of 20-30 basis points.

Market conditions in 2022 also do not appear to support high premiums. The origins have dipped 60% year after year according to the Mortgage Bankers Association, with no recovery expected in the short term. Last week, MBA researchers Fannie Mae and Freddie Mac all revised their volume forecasts downwards for the year. After ending 2021 with an estimated production of over $4 trillion, they now see creations between $2.4 trillion and $2.8 trillion this year. Expectations for 2023 are even lower.

Greater volatility in interest rates or the home sales market would also extend the payback period of any investment made when awarding bonuses, which are awarded based on expected volume.

“Although the estimated reduction in signing bonuses is the subject of debate and can vary widely depending on the market and the specific facts and circumstances, it is not difficult to imagine that they are down significantly considering given the decline in volumes and margins,” Cameron said.

Lenders, however, are more frequently mining data to determine appropriate bonus levels, according to the report. While in the past mortgage companies relied solely on W2 documents to set premium payout levels, the proliferation of third-party data sources has given them access to more granular data, such as combination purchase -refinancing and trends of individual producers. With loan officer license numbers attached to transactions, lenders bring the data to the negotiating table.

“While ubiquitous data on loan originators can level the playing field, it also increases the already very high recruiting intensity for the most productive LOs in good and bad markets,” the report said.

Some lenders, however, remain “philosophically opposed” to the idea of ​​signing bonuses and the free agent culture it perpetuates. Depository banks, in particular, do not seem aligned with the transitory nature of many loan officers’ career paths, according to the report.

“Quite frankly, they don’t want loan officers who aren’t inclined to ‘wear the bank shirt,'” Cameron said. But this particular feeling contributed to the great change in market share to non-banks over the decade. Independent mortgage banks are more likely to attract loan officers with signing bonuses than depository institutions to compete, and the trend is expected to continue.

“It is well documented that banks have lost market share to IMBs and there are many reasons for this. The unwillingness to pay top dollar for big producers is part of it,” Cameron wrote.

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