MReport August 2022

TheMReport — News and strategies for the evolving mortgage marketplace.

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46 | M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION Lender Trend Watch: Signing Bonuses, Structure, Data, and Tools STRATMOR Group Senior Partner Jim Cameron analyzed the industry's approach toward signing bonuses by highlighting how they are structured and how new data and tools can help lenders understand more about the potential of the loan officers they're retaining. E ven in today's challeng- ing market, high-produc- ing loan officers remain in high demand, accord- ing to mortgage advisory firm STRATMOR Group. Recruit- ing 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 in- sight 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 shut- ting 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 compensa- tion. For high producers, signing bonuses have been a big part of the story. Cameron says that will con- tinue, but more for some lend- ers 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 condi- tions ebb and flow," Cameron said. "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 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 informa- tion and screenshots of produc- tion 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 consider- ations such as purchase versus refinance mix, product mix, and production volume trends." Cameron uses STRATMOR data to show how signing bonus- es 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. Additionally, leaders will find a way to attract the best producers and signing bonuses will be one of their tools.

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