The mortgage workforce is back, but for how long?

Creating a more sustainable mortgage industry

By late spring of 2020, the loan pipeline at Princeton Mortgage was full. And CEO Rich Weidel’s staff was absolutely slammed. He needed to scale up ­— and quickly ­— to manage record origination volume.

Like most other lenders, Princeton, which operates in retail, wholesale and correspondent channels, fell back on the familiar strategy of hiring industry veterans to plug the gaps. Some took to the task immediately and thrived, but others didn’t work out. The attrition rate was higher than he liked, so he decided on a new approach. 

“At the beginning, we hired for skills and experience,” Weidel said in an interview with HousingWire in late December. “Now, we hire for attitude and ability.”

For Weidel, this frenzied period — in which trillions in mortgages have been originated and lender capacity has stretched like never before — created an opportunity to not only to capture market share, but to create a more stable and sustainable mortgage workforce that could grow with the business. And one that doesn’t require mass layoffs when revenues inevitably fall. 

Such a strategy stands in stark contrast to the industry’s historic modus operandi, where tens of thousands of workers are hired when margins and profits are fat, and just as many are fired when revenue and margins slim down. 

Live by the sword, die by the sword

It wasn’t so long ago that mortgage lenders were on top of the world. In 2006, loan officers were collecting record paydays by issuing mortgages to anyone with a pulse and a dream, underwriters were in high demand, and an army of processors were hired to help make it all happen. 

By the height of the bubble, the industry’s ranks had swelled to about 500,000 workers, according to the Mortgage Bankers Association

With the fall of Lehman Brothers, the real bloodletting began. Jobs in the industry vanished as banks frantically tried to shore up their balance sheets. Not that many Americans were looking for mortgages between 2008 and 2009 anyway.   

But as interest rates shrank and the broader economy gradually recovered, so too would the mortgage industry, whose fortunes are inextricably linked to the 10-year Treasury. In 2012, margins reached over 100 basis points and profits were soaring, according to data from the MBA. Some jobs returned, but many did not. 

By 2018, rates had ticked up to around 5%. Refinancings dried up and the pink slips had returned. JPMorgan Chase, Wells Fargo, Freedom Mortgage, Movement Mortgage, loanDepot, Guaranteed Rate and a slew of other lenders laid off workers. 

Revenues were again improving in late 2019, moving into early 2020. Then the coronavirus pandemic hit. 

Lenders braced for the worst, hoarding cash and drawing up contingency plans in the event the American economy completely tailspinned. The questions in March were about survival, not about bonuses or going public. 

Paradoxically, the virus that had decimated so many American industries had actually created the perfect conditions for the mortgage business to thrive. Interest rates had been pushed to unfathomably low levels, and millions of Americans, needing space and no longer tethered to the office, decided to buy a home. 

There was one major problem: virtually no one in the industry was prepared for the tidal wave of mortgage origination volume that was to come.

Recreating the machine

By the time Weidel had changed tack and reconfigured his company’s hiring and development structure, an arms race for experienced mortgage professionals was already underway, especially for underwriters. 

Underwriters who had been making $80,000 in 2019 suddenly were commanding six-figure salaries and five-figure bonuses on top of that.

With margins now checking in at 250-plus basis points and annual profit projections in the hundreds of millions to billions, many mortgage executives were willing to pay what was necessary to handle as much volume as possible. 

By summer of 2020, some of the country’s biggest lenders had been hiring hundreds of people per month. Rocket Companies has grown to over 22,000 employees, while United Wholesale Mortgage, Guaranteed Rate and loanDepot had all approached the 10,000-employee mark by the close of 2020. Traditional depository banks, credit unions, specialty lenders and independent mortgage banks were all scrambling to fill chairs, reduce turn times and stuff their pockets with cash. In many cases, they opted for experience. 

Wary of the boom-and-bust cycle of mortgage, New Jersey-based Weidel decided to opt for a more organic approach. His plan involved identifying less experienced talent that had the aptitude to learn the trade, grow into a role, and quickly advance. 

“We have found that the beneficial match is the growth trajectory of the company with the growth trajectory of the individual,” said Weidel. “We’ve hired trainers, formalized training and onboarding, and we’ve switched completely to hiring for attitude and ability over skillset. And we’ve designated several jobs within our company as two-year jobs, that’s it. Either you’re up or you’re out within those jobs. Historically, people would look out to 10 years, 20 years, but no, we can’t have that anymore. We need those to be jobs that are entry level feeder programs, we can keep bringing talent into the organization, including more technically challenging positions.”

The play is not without risk. It takes time for his team to identify the right candidate, and a lot of finesse to put them in the right position to succeed and develop. It means potentially leaving money on the table today to strengthen the overall company for tomorrow. 

At Princeton, the task of hiring typically starts with the marketing team, which has built a large database of prospective candidates that have certain attributes, many modeled after the current staff. What follows is an outbound marketing campaign that targets candidates who appear to be a good fit at Princeton. After that, a rigorous interview process that includes a personality test, including an Enneagram test.

“The [tools] certainly aren’t perfect, but we’ve found hiring without assessments yields a 50% success in hiring rate whereas hiring with assessments yields a 70-90% success rate,” Weidel said.

One of the reasons the mortgage industry wasn’t prepared to handle all the volume that came in 2020 is because that industry-wide hire-and-fire mentality created systemic workforce problems for companies over time, he said. 

“We’re missing a whole generation of people… because we didn’t really have people getting into the industry between 2008 and 2016, when it was relatively stable,” Weidel said. “I think middle management is really compressed. There’s a lot of people in their 20s and a bunch of people in their late 40s and 50s, but you’re missing the middle. And we see that day-to-day, they just don’t seem to be there. I’m 34 and I don’t run into 34-year-olds.”

As part of his reimagination of the workforce, Weidel implemented some workflow processes that have gained traction at the country’s two biggest lenders. 

“What we’ve learned from Quicken and UWM — who do a nice job with this — is really bifurcating down the positions to smaller responsibilities so that you can have junior underwriters and junior processors and loan officers and things like that,” Weidel said. “That the skillset needed to do a job is actually smaller. And you can have more people doing smaller pieces of the puzzle, and decrease the need for having a huge breadth, and share the skillset. Then you could move more people through the machine that way. I think the recruiting challenges of 2020 have forced us to think much more creatively around, how do we onboard people more quickly, and how do we move them around the machine?”

That trend toward specialization really began about four years ago, according to Cesar Hernandez, the co-founder and CEO of mortgage recruiting firm Agility360. “We see models that have as many as 12 positions when typically there would have been three,” he said. 

“The idea of creating a highly specialized workforce that provides a very efficient conveyor belt type of environment has worked” for lenders like Rocket, Hernandez said. But there are limitations. “They [Rocket] realized that they bifurcated too small, and you had people who were literally just following up with other people. Their entire job is to take an email, a call and send it to somebody else…I think they’ve reached the natural limit of what that system can achieve.”

Building a pipeline

Like most of its workforce, Hernandez just kind of fell into the mortgage industry. 

He spent the majority of his career in the tech space, where he grew accustomed to constant assessments of his technical skills, but also how often tech executives hired talent specifically because they felt they were good cultural fits. 

“Getting a good cultural fit in tech is a huge deal,” he said. “You can get a great network engineer, but if they hate their manager, they’re not goingto do a good job.” 

So when he co-founded his mortgage recruiting and staffing firm Agility360 in 2014, Hernandez was surprised by some of the responses from old hands in the mortgage industry. 

Cesar set up candidate profiles, assuming that a candidate with all the basic and necessary skills to work at Lender A would be able to do the same job at Lender B. After all, underwriters generally do 95% or more conventional or government loans. What made it a good value proposition, he reasoned, was that cultural fit. They took the model to big and small lenders alike. 

“They were like, ‘Look, we hire underwriters when we need them and fire them when we don’t.’ So there’s a real mismatch between the nature of the industry and the nature of hiring and retaining excellent talent,” Hernandez said. “And I think we’re seeing that now – it’s coming to the forefront with this huge boom. Companies are struggling to hire and retain good talent. But now the chickens are coming home to roost because…for their whole history the industry hasn’t paid attention to things that are important to the average employee.”

These days, Hernandez says retention rates at lenders both big and small are uneven, often due to poor cultural fits. But some of it is inevitable. 

“You cannot have industry grow by whatever percentage, 30-40%, and bring in all this fresh blood without causing a lot of friction,” he said. “One of the things we talk about with candidates when we first place them is that we try to prepare them for the amount of angst that they will experience those first 30 days. Especially, you know, if they’re used to a certain method, or they come from a larger company, when there is a lot of structure, to a smaller company, it’s going to be very uncomfortable.”

Per Hernandez, about 50% of people his company placed last year moved because the pay was too good to pass up. The others moved for all kinds of reasons – they didn’t like their boss, they moved locations, etc. 

“What we’ve found is the same people who are coming back to us again and again – 10-20% of the population is moving very frequently, but the other 70% or so stay where they are,” Hernandez said. 

The best way for the industry to start creating better organizational structures is to develop stronger pipelines and improve training programs, Hernandez said. 

“One is by recruiting new people into the industry on the front-end. The other is by finding people that we think have the requisite underlying skills. And that’s kind of our specialty – we always start with what are your underlying skills, your cognitive skills, your basic skills. In the case of an underwriter or LO or processor, are you good at math? Can you interact well with people? If you have those basic skills, it can be trained. The second prong of our business is convincing our clients to give somebody an entry-level position even though they might need somebody that’s going to be up to speed very quickly. It’s the long-haul.” 

Party in the front, business as usual in the back

The mortgage industry has historically not garnered a reputation for being the most tech-forward. The image of the loan processor hovering over a fax machine still lingers in the minds of many. 

But the conditions of the pandemic, namely social distancing, have forced lenders to up their tech games. Well, to an extent. In recent years, lenders have cumulatively spent billions on technology.

It has undoubtedly led to better experiences for borrowers on the front-end. With the click of a button, they can upload documents, sign forms. Automation has arrived, and it’s made that bifurcation of the back office possible. 

If anything, it’s been a big factor in the increased number of jobs, the majority of which are now remote. 

Lori Brewer, the founder and CEO of LBA Ware, a provider of incentive compensation management software for the mortgage industry, found that the number of processor jobs increased by 51% in 2020, while loan officer jobs increased by 27%. At the same time, volume increased by 100%. 

“All of this spending on technology – why did we have to hire so many bodies still?” Brewer said. “Why didn’t technology pick up the slack and do a better job? Or maybe it did. Maybe I had to hire 50% more processors, but maybe I would have had to have hired 100% more.”

Integrating the technology also becomes something of a double-edged sword for lenders, said Tim Armbruster, the CEO of Grind Analytics, which provides granular data on employee performance to mortgage companies. It requires a lot of management.

“It’s not like you can create an underwriting engine and let it sit,” he said. “It’s constantly being updated. You have different underwriting rules for different investors. It’s very fluid and difficult to create and maintain.”

A top retail lender, Armbruster said, is actually operating off a mainframe system, taking paper applications. “And they’re crushing it. So that’s a good example of why automation I don’t think is necessarily the silver bullet.”

Long term, he said tech innovation is going to happen because Fannie Mae, Freddie Mac and the agencies drive the change. In effect, the efficiencies mortgage lenders can realize on the back-end is out of their control.

Measuring employees, the new frontier

To date, it’s hard to argue that technology advancements in the mortgage industry led to better pricing for consumers.

In fact, the cost of producing a loan in the pen-and-pad days of 2009 is actually far cheaper than it is today. In 2009, the cost to originate and close a loan was $2,345, according to the MBA. In 2017, it had rocketed up to $8,807. In the third quarter of 2020, it had dropped slightly to $7,452. The reason for those rising costs, according to Armbruster, is simple.

“How do you gain efficiency in mortgage? Sixty-eight percent of the mortgage process cost in the third quarter of 2020 was in employee compensation,” he said. 

What can bring down the cost of the loan, aside from fewer workers, Armbruster said is creating better processes and quickly being able to assess the strengths and weaknesses of the company’s workforce. 

“Everyone is looking at the latest technology, completely reengineering their mortgage process. And that is hugely expensive,” he said. “Hugely expensive in terms of capital management, huge change management within their organization. But they have this big chunk of the pie – 68% in front of them that is the cost to close, is just employees.”

His company tracks key performance indicators and allows company leaders to assess workers within two months of implementing the software. 

Brewer’s company operates in a similar space. LBA Ware recently rolled out a new product called Limegear, which gives mortgage firms a look at employees in the top quadrant and  the bottom quadrant. “If you had to slash-and-burn, you could literally look at a graph, chart your KPIs…and I think that’s coming.”

What happens when originations fall?

The MBA and most economists foresee a slowdown in originations in 2021, primarily because of an expected slowdown in refi business. Purchase mortgage applications are expected to rise, and overall originations are forecasted to clear $1 trillion in 2021. But what happens when rates tick up again and the lender suddenly no longer needs seven processors, LOs, assistant LOs, and a few underwriters? 

“Everyone we’ve talked to says they’re going to continue to grow this year, which I have found a little bit surprising,” said Brewer. “You just grew 70% – that’s not sustainable. But I guess that’s classic mortgage, right? Everybody is always optimistic and growing. But I think at least by the end of next year, there’s going to have to be some trimming because what we have now is not sustainable.”

In Weidel’s view, there will likely be workforce volatility in the industry once rates start to rise again.

“We went to go play the game that everyone else is playing, which is recruit experienced mortgage people, and it creates a merry-go-round. That does not seem like a long-term winning strategy,” said Weidel. “We want to play a different game. And I think if you look at places like Freedom, UWM, and Quicken, they come to mind first, they’re not playing that game. They’re growing their talent. But I think in total, everyone is just still trying to steal each other’s people, and I think it’s really short-sighted.”

He added that, overall, he didn’t see a lot of radical thinking in how to create a more sustainable industry even with record profits for most lenders.

“I don’t see a ton of innovation in general around this because it’s hard,” said Weidel. “It’s really hard, and you have to have a multi-year strategy. You have to be confident that you’re going to have the volume in order to need these people two, three, four, and five years from now. Since we’re betting on ourselves to grow really rapidly, it’s worth investing in people today even though we might not get the big benefits for three years from now.”  

To read the full March issue of HousingWire Magazine, click here. 

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