Even in a down market, lenders lean on LO signing bonuses

LOs have a “free agent” mentality and demand for high-producing LOs has always been high: Stratmor

Gone are the days that loan originators received hefty signing bonuses to crank out refi after refi. But make no mistake, even in a down mortgage market lenders are still dangling signing bonuses to recruit high-producing LOs who can eat what they kill. 

Signing bonuses are still here to stay for distributed retail LOs because top-producing LOs have always been in demand, said Jim Cameron, author of a report on signing bonuses from Stratmor Group. Distributed retail is still a relationship-based business, especially in a purchase-dominated market.

“Good LOs have strong referral partner relationships and a deep set of relationships with prior customers in the communities in which they live,” Cameron said. 

“Independent mortgage bankers are more likely to ramp up and down aggressively as market conditions ebb and flow,” Cameron added.  “They must — it’s a matter of survival.” 

According to the report, it was not uncommon for signing bonuses to be in the range of 75 to 100 basis points on volume in 2020 and early 2021, when retail margins were 150 to 200 bps. 

“While the estimated reduction in signing bonuses is up for debate and may vary greatly by market and specific facts and circumstances, it is not hard to imagine that they are down materially given the drop in volumes and margins,” Cameron said.

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In addition, high-producing LOs often have a “free agent” mentality with an average turnover in the 30 to 40% range and an average tenure of around three to four years. 

Focused on building a personal brand, LOs are more likely to jump ship if another lender offers a better deal, another reason why signing bonuses are here to stay. 

Signing bonus amounts paid this year declined by 50% from what one sales executive saw in 2020 and 2021, but are not yet down to 2018 levels. 

In 2018 and early 2019, LOs who received signing bonuses in the 20 to 30 bps range would not have been out of the ordinary when profit margins were in between the 40 and 50 bps range, Cameron said. 

Lenders have better data and tools to understand the viability of prospective loan officers, Cameron said.

While reviewing W-2 information and screenshots of production information from LOs were common, third party data sources provide the amount of purchase loans, refis, and production volume trends. 

“While ubiquitous data on loan originators may level the playing field, it also increases the already sky-high recruiting intensity for top producing LOs in both good markets and bad,” Cameron said. 

With the overall mortgage production in the U.S. expected to drop more than 40% this year to $2.4 trillion origination volume, independent mortgage banks are focusing more on purchase loans. 

Recruiting battles for LOs remain fierce but it could take a few months to land especially through outbound recruiting, mortgage executives and LOs previously told HousingWire. Though signing bonuses aren’t as generous as they were during the boom, many LOs making a move are receiving better compensation at their new firm.

“Our industry knows that the process of going into a marketplace trying to find experienced originators is a very competitive and somewhat of a lengthy process,” said Paul Buege, CEO of Inlanta Mortgage.

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