Mortgage originators, it’s time to ask for a higher compensation rate. Confused? Don’t be. Given the current interest rate environment, as well as origination costs that remain higher than their historical averages, according to the Mortgage Bankers Association, the writing is on the wall for a dramatic change in originator compensation.
Rather than fight the inevitable, savvy originators can proactively offer to restructure their current compensation plan to create a financial scenario that benefits everyone.
Many lenders use a tiered compensation model, rewarding originators who meet and exceed certain predetermined levels of production with higher commission rates. Although this seems like a boon for the originator, in reality, it can disincentivize originators to consistently provide stellar customer service, since they are constantly driven to pursue the next deal.
In addition, a tiered comp plan also provides the opportunity for less scrupulous originators to sandbag their monthly production. This allows them to roll over certain deals to the next month, thereby positively manipulating their own compensation at the expense of the client.
Although it seems counterintuitive, originators would be much better off by asking for a flat compensation rate that is slightly higher than the base rate offered under a tiered plan. This allows these professionals to focus more intently on each deal, thus enabling them to compete on service and outperform their competition. Of course, a higher comp rate comes with increased expectations. Here are some strategies that originators must follow to meet these expectations.
Most referrals fall into two categories: warm and cold. Cold referrals are those that are simply passed along and lack a personal connection to the referral source, such as when a real estate agent forwards an incoming lead from Zillow. Warm referrals are those in which the referral source sends over a direct contact with a firm endorsement. These are the more valuable type of referrals originators can receive.
Warm referrals require originators to be more than just good at what they do. They also must add value in a way that separates them from their competition. By taking the time to find out what is important to referral partners and help them achieve their goals, an originator can ensure there will be no question as to whom the partner will refer when the time comes.
Having received this warm referral, the mortgage broker or loan officer must then advocate for the referral partner. Giving a client third-party validation that they have made the best decision in who they have chosen to work with massively increases conversion rates for both the originator and the referral partner.
An effective way to do this is to ask the referral partner how they would like to be cross-sold, meaning which specific areas or skills they would like to have reinforced with the referral customer. This naturally opens the door to having the referral partner ask similar questions, ensuring that each side is equipped to validate the consumer’s decision on their choice of real estate agent and mortgage company. This strategy has proven time and again to increase conversion rates, and it has the added benefit of potentially turning into yet another referral stream via the borrower.
For real estate agents, there is the added benefit of working with a trusted partner. In the past, if the consumer opted not to use the mortgage company referred by their agent, the downside for the agent was simply a loss of control over the process and a slight increase in uncertainty over whether the deal would close on time. Now, however, many of the larger, consumer-direct mortgage companies have assembled their own panels of agents who are willing to give up money to put toward a consumer’s costs. This increases competition on the agent’s side, as well as the need for agents to have strong referral partners.
From an originator’s perspective, the mortgage process encompasses three different stages. The first is the early stage, meaning the time from when a lead comes in until a contract is signed. Next comes the middle stage, covering the period between contract and closing. Thus, the final stage includes all post-closing activities and contact.
Most originators wait until the middle stage to create a better experience for their borrower, but by this point, it is too late. The business has already been won so there is little risk of the consumer switching lenders. Where you’re most likely to lose an opportunity — and where offering a better experience is likely to have more impact on conversions — is the early stage.
From the first point of contact, originators must actively cultivate an experience that serves to transcend other aspects of the transaction. First impressions matter and something as simple as a handwritten note can go a long way in keeping a consumer engaged.
Rather than simply taking and sending their application for prequalification, invite the consumer to come to your office and talk through the process, then ask what is most important to them. Have their name on a welcome screen when they first walk in so they feel special. Provide snacks and drinks for the meeting. Take the time to get to know them on a personal level. These kinds of gestures help create an atmosphere that builds trust and loyalty with the consumer.
Originators must create a distinct experience or feeling for the client immediately so that if the borrower does encounter a lower rate option, there’s a chance to retain their business. Simply telling someone that their experience will be better with you is not enough. They must have already experienced it to be able to understand it.
The early stage of the transaction doesn’t end there and neither should the experience. Originators must maintain contact with the consumer throughout the prequalification process until the client finds his or her home. Answer questions. Be encouraging. This isn’t the time to hard sell. Instead, become their ally rather than their vendor.
Of course, having a plan like this doesn’t necessarily ensure a 100% conversion rate. What it does, however, in the event the consumer shops around and finds a cut-rate lender, is to give them the ability to compare the two experiences. Ultimately, the lion’s share of consumers will still choose to work with the lender who provided the better experience, because they feel more comfortable. There will always be some consumers who will go with the cheaper lender and there is no way to eliminate that threat. By being aware of the threat and putting actions in place to mitigate it, however, originators can effectively compete on experience when they cannot compete on price.
Cultivating warm referral sources, delivering a superior consumer experience and providing a consultative approach are activities that are incredibly time-consuming, as are all worthwhile endeavors.
Take the time
It’s a statement that bears repeating: Buying a home is the single largest financial transaction most consumers will ever make. The homebuying process is complex and overwhelming, and at the end of the day, consumers want to feel that the professionals they are working with have their best interests at heart.
One way to reinforce this is to adopt a more consultative approach with consumers. Take the time to understand what is important to them beyond the immediate desire of purchasing a home. Walk them through their larger financial picture. What’s important to them in the future? Are they planning for kids, college funds, retirement, etc.? Does this house fit into those goals? Does their downpayment fit into that plan? Is it going to help them get closer to that plan or farther away?
If originators spent more time asking clients what is important to them, helping them solve these issues and eliminating their fears — instead of just selling what they think the borrower wants to hear — the retention rate for these clients would go through the roof. Cultivating warm referral sources, delivering a superior consumer experience and providing a consultative approach are activities that are incredibly time-consuming, as are all worthwhile endeavors. To make all of these things happen while ensuring that the approval process runs smoothly and the consumer closes on time, originators must increase their efficiency in regard to more menial tasks.
This is where technology can help. Technology should enhance, not replace, the originator. By using technology to create a better behind-the-scenes tracking method and expedite the origination process, mortgage brokers and loan officers can ultimately deliver a better experience for their clients.
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By following this blueprint, originators are well-positioned to increase their overall conversion rate, which ultimately drives sales volume and profitability. Under an adjusted, flat-rate compensation plan, the originator also has the potential to maintain their level of financial success while also helping their organization rein in costs and enhance corporate profitability. In the end, it’s a win-win-win scenario for the consumer, the originator and the lender.