Originating

3 ‘OK Boomer’ Moments in Mortgage Banking

The catchphrase “OK Boomer” caught fire in 2019, trending in the media and on the Internet. The saying gained popularity when CNN showed a video of Chlöe Swarbrick speaking about the Zero Carbon Bill in New Zealand.

Sherlock: not having an accurate view of sales performance is a recipe for disaster
Pat Sherlock

When Swarbrick was heckled by an older official, she casually dropped a sharp-tongued retort—“OK Boomer”—and, unfazed, continued talking amid the stunned silence in the room. According to CNN, “OK Boomer” is a viral meme among Millennials and Generation Z, that exploded in 2019 on the TikTok social media platform, where countless videos mock what young people perceive as out-of-touch Baby Boomers and their patronizing opinions.

What particularly bothers the younger generation is when they present data and facts regarding important issues, they are slapped down by an older generation that shouts, “You don’t know what you are talking about.” While “OK Boomer” has been prominent in climate change discussions, that phrase could also be relevant to critical topics in mortgage banking.

Outdated Mortgage Banking Strategies

Three primary issues come to mind when I think of how mortgage banking is behind the times. First, the cost to originate is currently $10,200 per loan, according to the MBA. The recent current refinance volume has slightly lowered the number, but the fact is that 58% of the IMBs retail production costs are tied to sales employees, including their salaries, commissions, expenses, benefits, marketing etc.

This is a significant number that is further compounded by the large percentage of sub-par originators who are not performing well enough to hold their seat. Why aren’t these producers being held accountable for results when it is clear that companies cannot afford to carry them? Why aren’t corporations addressing an outdated hiring process that does not identify these poor hires earlier?

Second, a 100% commission compensation approach might have made sense in the past, but currently it is the cause of inefficiencies that can no longer be ignored. A 100% commission approach works when the market is easy. But, when refinance volume fades, companies incur greater costs by providing marketing support to originators who are order-takers and are not matched to generating production.

A 100% commission structure lulls sales managers into thinking that underperformers can be carried when they cannot. In my view, the biggest misconception is that managers believe this commission structure doesn’t cost them anything when it does. Time spent managing poor originators; the upheaval in operations; and slipping morale of the sales group all have financial costs. As the saying goes, “There is no free lunch in business.”

If a company wants to establish themselves as a leader in delivering an outstanding customer experience, having a 100% compensation structure will not accomplish this goal because the quality of originators is not evenly distributed across the sales force. Some originators are solid performers while others are not.

And finally, 100% commission will not appeal to recent college graduates who are deciding which industry to join. Mortgage banking will not be attractive to the best and brightest sales candidates, which we need in order to match what the consumer marketplace now demands.

Third, the growth strategy of depending on local producing managers to recruit good producers and add them to their team is flawed. Why? The producing manager usually generates the greatest production in their branch, so adding another $6 million to $8 million annual volume via new hires is perceived as incremental revenue to the group.

Practically speaking, this strategy just prompts local managers to hire “warm bodies” to placate their supervisors while increasing their cost to originate.

There are other “OK Boomer” moments that deserve mention, such as:

  • Failure to establish and enforce production standards
  • Lack of training to improve originator performance
  • Failure to determine whether sales candidates are a good fit with corporate goals.

The list goes on. As we start the new year, it may be time to leave outdated sales strategies in the past.

Pat Sherlock is the founder of QFS Sales Solutions, an organization that helps organizations improve their sales talent management and performance. For more information, visit https://patsherlock.com

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