Rookies that pursued a career as mortgage loan originators in 2020 air dropped into a scintillating real estate market. There was easy money to be made – refi opportunities were bountiful, lenders hired tens of thousands of workers to meet capacity, and even showered underwriters with five-figure bonuses on top of $150,000 salaries. Rookie LOs in 2020 could ride the refi wave and rack up a hefty monthly paycheck without Herculean effort. But these days, they’ll have to sing for their supper. Many are likely to wash out.
The refis that propelled the market to astronomical heights last year are drying up, while purchase mortgage transactions now dominate the market. Industry insiders say that the entry-level LOs who made a killing solely off of refis last year will likely struggle to adapt to the market changes.
“It takes months if not years to foster those realtor relationships and then you throw into the mix iBuyers and it just becomes an extremely crowded place,” said Jim Clapp, president of Certainty Home Loans.
Clapp noted that many of his LOs continued growing their relationships with real estate agents “because when the music stops you can’t establish a relationship with a realtor if you haven’t been servicing them throughout the pandemic.”
According to data compiled by the Mortgage Bankers Association, a purchase market usually correlates with an increase in LO turnover.
The trade group’s yearly survey, compiled from data collected through the MBA and STRATMOR peer group roundtable program, found that in 2014 and 2018, years with weaker origination volume, the LO turnover rate was 44% and 37%, respectively.
Meanwhile, in 2020, LO turnover was the lowest in the survey’s history, at 21%, the MBA found. The second-lowest LO turnover rate was in 2003, at 31%.
Marina Walsh, vice president of industry analysis research and economics at the MBA, said that one of the reasons why LO turnover was so low in 2020 was because “business was booming” and LOs “didn’t want to have down time transitioning to a new company during a period where they were doing so well.”
However, 2021 is painting another picture. “Even if purchase originations are going up, volume usually drops to a large extent, when volume drops, that impacts profitability,” Walsh said. “If mortgage companies are not profitable, we always see LO turnover go up, whether it’s for more experienced LOs or new officers. Less volume translates to more competition.”
And this in turn could result in LOs hunting for another job or getting out of the business altogether.
“Any LO who is new to this business and thinks that 2020 is the norm is misinformed, 2020 was an unusual, outlier year,” said Walsh. “If refis were what the LOs were relying on, it would be hard in a purchase market.”
LBA Ware’s quarterly loan compensation report from Q4 2020 found that the LO headcount increased by a whooping 27% year-over-year, with average individual production coming in at $2.6 million per month in Q4 2020.
And although there are no solid numbers pertaining to the current LO headcount, the analytics vendor’s recent Q2 2021 report shows that LO wallets are starting to deflate, with compensation earned per LO declining 6%-year-over-year, while loan volume per LO dropped by 4%.
Joe Garett, partner at mortgage consulting firm Garrett, McAuley & Co., noted that in general “it’s tough to start a relationship with a real estate broker, and it will get yet harder due to competition.”
“I agree that many new loan officers will quit in frustration,” he predicted.
Paul Hindman, managing director at Grid Origination Services, said that many lenders, particularly large nonbank IMBs, will keep their ranks filled. “This is not a one-size-fits-all trend,” he said.
“Those (mostly non-Bank IMBs) that are committed to well established, highly successful entry level/newbie/rookie programs continue to deploy and value this hiring strategy,” Hindman said. “Therefore, I predict no change regardless of the shift to purchase from lessor refinance activity for the majority of mortgage originators. Rocket and others are proof of this…”
He also noted that mortgage origination companies that hire newbie talent “are doing so to meet consumer demand for their end-to-end product offering and preferred experience.”
Rookie programs teach entry-level LOs the business, including sales tactics, loan structuring and how to cultivate relationships with customers.
“There’s a decent amount of companies that have rookie programs, that teach them how to get business,” said Clapp. “But typically [entry-level LOs] are successful only if they have a good mentor , if you send them out solo that usually doesn’t lead to a lot of success.”
Good topic Maria. Agree some LOs will struggle, but also tomorrow’s star LOs will emerge from 2022’s purchase market transition. Three things to watch on how it’ll play out:
1. New LOs can use old school tactics like showing up and supporting realtors at open houses to build face-to-face realtor relationships (and also meeting new clients!) that seasoned LOs are too busy to do.
2. New LOs can use their tech savvy to support the marketing/sales efforts of realtors, including clever/fast/cheap social tactics to help realtors push listings and show realtors they get it.
3. There are lots of new realtors in the market too, so new LOs must get to those new realtors and become their trusted partners before they get too far into other relationships. New LOs can commit more time and education to these new realtors than seasoned LOs can — this time spent will reward new LOs for years.