Do High Volume Loan Originators Cost Companies More in the Long Run?

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One of my favorite one liners comes from the movie Jerry Maguire when Cuba Gooding, Jr. tells Tom Cruise to "Show Me the Money". 

I've heard over and over again from owner/operators that they've built an infrastructure to support their monthly production projections, yet for some reason they seldom hit those targets. These numbers are pie in the sky. Operation owners and managers of mortgage companies preach about loan production, branch expansions and proformas rather than focusing on improving productivity to...drum roll please...MAKE MORE MONEY!

Making money is not all about producing loans. It's about running the business efficiently. Don't get me wrong, loan production is a very very important part of the process, but that production needs to be profitable. 

During interviews we ask clients to provide us with a branch level P&L and more importantly, a loan officer level revenue and profit performance report.  Most of the time we get a loan level production recap which includes the number of loans closed for the month and year.  It does not share loan level revenue and expenses, including commissions paid to loan officers.   Revenues include origination fees, incidental fees and secondary market gains.  Expenses include DU fees, loan officer commissions, processing, underwriting, etc.  What we are really looking for is to gauge the value created by each individual loan officer, in $'s and basis points. 

Here are two observations we've found relevant after reviewing loan level data over the past year...

  1. High producing loan officers do not always adding value to the company.  They produce a lot of loans, but because of high commission splits and extra attention requirements from the support staff, these loan officers often times end up contributing less to the bottom line.
  2. Lower producing loan officers generate greater gross revenues which translate into increased profitability to the Company.  Volumes are low, but their attention to detail is higher and adjusted revenues reflect that.

Maybe loan officers need to be asking their managers the same question Tom Cruise asked Cuba Gooding, Jr...."WHAT CAN I DO FOR YOU". It's not all about production volumes; it's about adding value to the company and growing the bottom line.