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Can the mortgage workforce demands of 2020 stand the test of time?

The mortgage workforce movement

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Four months into the new year and conversations among mortgage executives were focused right back on the same issue that always happens after a mortgage boom — LO comp.

Three mortgage executives were virtually gathered to talk about the routine topic at the Mortgage Bankers Association’s Spring conference in April. The session was a part of the MBA’s decision to merge its usual succession of conferences into one, lump virtual conference due to the pandemic.

“It’s hard to go to your loan officers and tell them they’ve got to reduce their commissions,” Eric Gates, president of Apex Home Loans, said at the time. “There are some other tools — we implement dollar minimums and maximums with everyone. And we do have conversations and show the math on that — if they’re willing to lower their maximums then they can be more competitive on larger loans.”

All three executives shared similar sentiments about waiting too long after the refinance boom of 2018 to adjust pricing, a move that is both extremely sensitive but vital to the health of a company. But as the industry readies for the turn of another calendar year, the waning refinance boom’s impact on LO comp has only grown, with compensation now being one factor in a much larger discussion around what the mortgage workforce will look like moving forward.

The aftermath of 2020’s surge in demand lingered around in 2021, but between extra staffing, a pandemic that forced everyone to work from home and a shift in where the need is, the mortgage workforce is going to have to make some changes heading into next year.

What goes up must come down

At the start of the year, analytics provider LBA Ware’s quarterly loan compensation report showed that LO head-count increased 27% year over year.

While the industry did scramble to hire more people in 2020 to meet the huge demand in business, the increased headcount does come at a cost. More people equals more loan disbursement between LOs and maybe more importantly, operational expenses.

When LBA Ware released its updated numbers for Q2 2021, LBA Ware Founder and CEO Lori Brewer commented on the looming potential impact of over-staffing. “

Another notable observation is that lenders added processing manpower at almost 10 times the rate they added LOs in Q2. It remains to be seen if that level of operational staffing will be sustainable over the long term,” Brewer said.

The report stated that loan processor staffing grew 49% year over year in the second quarter, with processors handling 27% fewer loans per month in the quarter compared to the year prior. This ultimately led to smaller paychecks, as processors experienced a 26% decrease in quarterly bonus compensation earned, dropping from $2,684 per processor per month in Q2 2020 to $1,999 in Q2 2021.

To get the added perspective of what’s happening on the wholesale side, the Mortgage Bankers Associations’ Quarterly Mortgage Bankers Performance report for the first quarter of 2021 found that companies that are 75% of more wholesale, on average originated 1,884 loans, with total origination-related income coming in at $1,772. For companies that are 100% retail or consumer direct, they on average originated 2,341 loans, with total origination-related income coming in at $2,184.

However, while loan compensation has long been a hot topic, 2020 ushered in a different set of requirements from operational staff and originators that goes beyond money.

What do you want?

“The first question that I get from candidates typically is, ‘Is this position fully remote?’ That’s what they want to know right off the bat,” Raj Sharma, who serves as chief operating officer at mortgage recruiting firm Agility 360, said.

Sharma noted that the desire to permanently be remote also spans across all roles, ranging from entry-level customer service agents to team lead underwriters and supervisors.

Working from home wasn’t an entirely new concept for the mortgage industry, but the remote opportunity often depended on your role. For example, it wasn’t uncommon to find a remote underwriting position, but it was less likely to find remote processing positions.

During a summer podcast interview for Housing News, Brian Holland, CEO of Atlantic Bay Mortgage Group, shared his company’s journey to getting its workforce to 95% remote as of March 2020. The company was uniquely positioned since over a decade ago, it decided to allow people to work remotely so they could draw in talent from across the country.

But it still wasn’t at the level it is at today.

“Prior to the pandemic, we had some processors working remotely and then many more working remotely,” said Holland. “Unfortunately, there’s still a few things that we have to do with paper and wet signatures, and those are the only positions that are difficult from a remote standpoint, like final docs, delivery and some of those things.”

“Prior to the pandemic, we had some processors working remotely and then many more working remotely,” said Holland. “Unfortunately, there’s still a few things that we have to do with paper and wet signatures, and those are the only positions that are difficult from a remote standpoint, like final docs, delivery and some of those things.”

Those few positions that must touch paper in the office make up the 5% who aren’t remote. Scott Crutcher, a veteran of the mortgage industry who now serves as president and founder of Maverick Financial Group, echoed people’s heightened desire to work remotely. It’s also something he is seeing a shift in at the executive level, as his firm serves as an executive search and advisory firm.

“One of the things that’s enticing people is change. The work from home environment is here to stay,” Crutcher said. “A lot of the SVPs, EVPs, presidents and CEOs that I talk to on a weekly basis are getting away from — or at least slowing down — these high-priced lease spaces, especially on the retail side.”

The other change that Crutcher and Holland commented on was the shift in trusting employees to be productive at home when the fear used to be that people would slack off.

Everyone being forced to work remotely in 2020 has shown that people can not only be productive, but also super productive working f rom home, Crutcher explained.

“There’s so many instances of top mortgage professionals making seven figures running their empires from the beach in their flip flops and doing it well,” Crutcher said. The story is similar for Holland.

“When we first tested [remote options], we wanted to have our more experienced people do it who we knew.”

As time went on, he learned that “the key, as in every position, whether it’s remote, or it’s in the office, is to find the right person, and the right people that are motivated and passionate about not only what they do, but about the company.”

However, not everyone in the industry is keen on the idea of working from home. In an interview last year on the company’s rise to becoming the No. 1 wholesale lender, United Wholesale Mortgage CEO Mat Ishbia commented on how the stay-at-home orders made him realize that while UWM can move its nearly 6,000 employees remote on a whim, he will never voluntarily do it again.

“That’s just not who we are here, and that’s not what we’re going to ever do,” Ishbia said. “Unless this pandemic lasts for the next five years, we’re going to get back to normal as soon as everyone’s safe and healthy and we’re able to do that.”

Is now the time to be picky?

“The origination boom of 2020 is leading to the servicing boom of 2021,” said Sharma. While there was a huge ramp up in operation teams in the mortgage workforce, there still might be room for those roles to transition into other roles, versus the industry normal, which is layoffs.

Sharma explained that he thinks companies are trying to create that cushion that they need, by allocating folks that are already in their system and hired, and instead of reinventing the wheel and doing a mass layoff on the origination side, transitioning them into servicing.

Another foreclosure crisis isn’t likely due to a multitude of factors, including increasing home prices, low inventory and high buyer demand, but that doesn’t mean there isn’t a major need for more help on the servicing side. At the start of August, there were still 1.74 million homeowners in forbearance plans, according to the MBA.

It’s also creating more opportunities for growth within the servicing space, as small servicing and sub servicing shops poach from the bigger shops, Sharma said.

He added that the servicing space often offers more lateral moves with the room for growth being very slow and tedious.

And it’s not just servicing that ’s seeing an uptick in staffing. Crutcher said he is noticing hiring trends in wholesale account executives, consumer direct loan officers and even hard money loan officers.

“With the crazy real estate market right now, there’s a lot of people that are going out and utilizing alternative financing, hard money and private money type loans to be able to be competitive with a cash offer in most markets across the country right now. So, our private lending clients are experiencing tremendous growth,” he said.

The new demand for these roles isn’t too surprising though. Due to the cyclical nature of the housing industry, the job needs have always ebbed and flowed.

But there is one major factor that hasn’t been around as much in past cycles that could be a game changer moving forward: technology.

The future

“Unfortunately, I think half the industry might be heading towards the unemployment line,” Tom Middleton, founder and managing partner at The Middleton Group, said.

He doesn’t mean layoffs in the same way that it has meant in the past — big hiring booms leading to a lot of layoffs when demand settles. Instead, he is talking about the role that technology will play in companies.

“I think technology is really, really showing its face, and I don’t mean the old days where we talked about technology giving us more loans. I mean, technology is enabling companies to work smarter, not harder,” Middleton said. “With regulations and system improvements constantly, you really don’t have the need for that full-time employee as much as you once did. That’s a trickle-down effect all the way across the industry.”

After an extremely successful year like 2020, Middleton questioned why there are any issues today after people have bragged about how they’re in a record year and how they just came out of a record year.

“We bring talent in and the first thing they want to do is knock down half the production. They want to start tearing apart this candidate, but the question we have is, where’s that revenue? Because the companies of tomorrow, they’re going to show their true colors based on their ability to withstand the pressures of having margins go up,” he said.

Margins, as they have long been, will continue to be the center of many conversations moving forward. Except now, executives should have more tools in their tool belt to work with.

“The chief financial officers that I talk to in our industry are burning the midnight oil right now trying to figure out how to drive down the cost per loan. That’s always been the game — how can we run more loans through the factory better, quicker, faster and less expensive, by lowering the cost,” Crutcher said.

“That’s going to continue to be a hot topic as technology improves, there’s going to be the haves and the have nots,” he said. “The ones that have the technology to continue to push the levers to drive the cost per loan down, and then, there’s going to be the ones that don’t have it that I simply don’t think will be around after 2023, 2024, 2025.”

As a result, and to drive efficiency and reduce costs, Crutcher said, “We’re going to continue to see large amounts of M&A activity. It’s exciting. It’s good thing.”

To read the full September issue, go here.

To view past issues of HousingWire Magazine, go here.

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