WE’RE HEARING it’s time to figure out exactly how originators should get paid for consumer direct lending.
Last week, I shared with you my
Now it’s time to get into the really messy stuff—so I add the consumer direct channels to the mix. After all, if there is a channel that loves data, it’s consumer direct.
Consumer direct has shown a big rise in production over the past couple years. In fact, we were recently analyzing the consumer direct market for a client and found that nearly 40% of retail volume was in consumer direct, driven by a growing share of refinance volume. We are digging into the trend on purchase volume now, but we know that consumer direct is a growing part of the market, and we also know that there is a wide disparity of pay for consumer direct sales staff. It’s not as easy as simply asking a loan officer “how many bps do you get”—the interaction of lead type, lead conversion and volume all impact the pay for the typical consumer direct originator.
In the traditional retail shop, the pay for loan officers is typically basis points of production, with ranges for certain volume thresholds—so-called tiered compensation. The plans for traditional retail compensate the loan originator for providing marketing, solicitation, lead management, counseling the borrower as regards to loan selection and, ultimately, taking the loan application. That is five discrete steps to creating the application and thus the opportunity to fund a loan and make revenue. For consumer direct, some portion of the initial three steps (the creation of the lead) is performed by the employer.
Thus, you could make an argument that the compensation should be lower for consumer direct. And at Stratmor, we consistently see that it is indeed lower than traditional retail. What is not consistent, however, is how much lower and exactly what behaviors are incented. So, while traditional retail is basic math (loan amount X basis points), consumer direct is a calculus with a range of variables.
For example, if a call-center originator is receiving HARP leads at a large servicer, do you have to pay her (yes, loan officers can be woman, too!) as much as the call center agent who is handling VA purchase loans? If you have highly sophisticated lead analysis capabilities, and thus delivered the best leads to the best agents, would you still need to pay those agents as much? If you were generating a lot of jumbo loans, would you still want to pay originators basis points or would “per unit” compensation be more effective.
About 10 years ago, I was running e-commerce for a large direct lender and our agents were funding over 50 loans per month. We had a marketing machine, had built out excellent automation and we had a strong value proposition for the consumer. All of that factored into the efficiency, along with an excellent core of agents who were skilled at “giving good phone.”
But we did not pay them nearly as much as our peers did because we did not have to: The agents still did very well, and our attrition rate was very low. It was a win-win for the company and the agent. But there were a lot of factors that went into the calculus of determining the right pay for that situation.
We’re watching this year’s
But we are also capturing insight into lead mix, company size and profile—element that indicate how hard the job might be, and thus what incentive is appropriate. This multivariable approach is what lets lender solve the calculus equation that is compensation for consumer direct. Our analysis of this information will be shared with those who take the survey, so be sure you’re contributing to the project.
Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience, from Fortune 500 companies to startups, including management of two of the most successful mortgage e-commerce platforms. He was formerly with Chase Manhattan Mortgage and ABN Amro, where he was a senior executive during the sale of its mortgage group to Citigroup.
