How to Incentivize Underperforming Loan Officers for a More Profitable Team

profitable lending teams

 

You likely know who your most productive loan officers are—they’re your LOs who deliver the most volume. But do you actually know which loan officers are the most profitable? Do you understand the discrepancy in profitability amongst your team members? Are your LOs completely maxed out in terms of productivity, or do they have the ability to produce even more?

A recent study found that a whopping 80% of loan volume is originated by just 40% of loan officers. That’s an impressive statistics for those top performers, but dig deeper and you’ll encounter a frightening truth about that other 60% of your team who is underperforming.

With relentless margin compression and ever-increasing loan origination costs, it’s imperative to your team’s success that those loan officers who aren’t performing at their ceiling quickly improve their productivity and, by extension, profitability.

 

How to Jumpstart Productivity & Motivation for Under-performers

If there are loan officers on your team who aren’t performing well, you’re not likely to see them improve their performance by imposing negative consequences or making them fear that they will lose their jobs.

Rather, the best way to quickly see better performance from your team of lenders is to give them a reason to want to improve, and there’s no better way to do that is to reward their wins and align their interests with the interests of the company.

 

Start with Your Baseline

But before you can start rewarding good performance, you need to establish baseline metrics to track productivity and profitability improvements against.

Start by looking at clean pull-through for each loan officer, netting off the cost per loan, taking into account pricing concessions and the time/resources needed to close a loan. You will likely be shocked at the large discrepancies between efficiency and profitability.

With baseline metrics established, the next step is to take those metrics to your team. Create scorecards by loan officer or branch (it doesn’t matter how pretty it is to look at, Excel is fine) and share those on a daily or weekly basis across your team.

Dashboards and real-time tracking creates accountability and fosters healthy competition amongst team members.

 

Identify Process Discrepancies

Next, spend time with top performers to understand their process. Then talk with under-performers and understand their process to identify the discrepancies that exist in terms of process to understand where to troubleshoot for better results.

 

Redefine the Role of the Loan Officer

In many cases, the structure and role of your frontline teams might need to change to accommodate the shifting market. It may be useful to scrap preconceived notions and completely redefine the role of the loan officer, implementing on-the-job training, deploying digital tools, and structuring around smaller teams to make your business more agile in a complex market.

Make a commitment to building your LOs’ knowledge of products and creating a well-defined process of relationship building. Movement Mortgage is one example of a company who has successfully pulled this off; they created smaller teams to focus on performance and dramatically ramped up training and created data feedback loops.

As a result, their front-line teams quickly ramped up performance, in large part thanks to a renewed sense of confidence as they witnessed company performance and borrower satisfaction improve as their own efforts began to be recognized and rewarded.

 

Make Your Dollars Count + Incentivize Heavily

According to Oliver Wyman, 66% of loan origination cost on average is tied to people-related expenses. But rather than taking extreme cost-cutting measures or reducing your head count, consider a more positive (yet still effective) strategy that ensures your people-related dollars are well-spent and compensation expenses are intrinsically tied to business goals.

There are clearly metrics that tie directly into profitability, but how embedded are those metrics in your compensation plan? If these metrics underlie profitability and align with your high-level business goals, then you’re missing out on a huge opportunity to align compensation with these metrics as well to ensure everyone is working towards the same goal.

For example, let’s say borrower satisfaction is your company differentiator and your #1 success metric. With a thorough understanding of your baseline performance metrics, consider re-working your compensation structure around borrower satisfaction metrics and incentivize heavily when loan officers exceed customer satisfaction expectations.  Tie compensation to metrics like net promoter score, time to close, and reduced pricing concessions to align your team’s performance to business initiatives.

 

The Bottom Line

If you want better performance from your loan officers, give them a reason to work harder that isn’t based on negative consequences.

I know it can be hard to justify focusing on employee incentives when margins are tight, but you don’t have to re-invent the wheel. Spend what you’re already spending, just re-tool your current strategy to align more firmly with metrics tied to profitability.

When individual fiscal success relies heavily on organizational financial success, you can bet that your loan officers will put everything they’ve got into their work to ensure they are performing well.

 

For more on how to improve profitability in your organization, check out our eBook: 

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