A Step by Step Plan on How to Run a Mortgage Business in 2008
November 29th, 2007 Categories: Mortgage News
At least 5 times per week I get asked how I would run a mortgage business in todays market, or something to that effect…there’s a million ways to ask the same question. So, in the spirit of why I started blogging (because I really do not like repeating myself) and in Twitter like fashion, Ill start running my fingers against the keyboard and impress my thoughts accordingly…
This will be a few part series on how I think a mortgage business (brokerage et. al) should be (re) run in todays market, going forward. I’m shooting from the hip here, in rapid type mode, so excuse the lack of linkage.
Step One. Fire everyone, reduce the size of your current office space, and buy new computers if they are 3+ years old.
Step Two. Toss your antiquated compensation plan. Antiquated means:
A) Any model that pays some ’split’ of gross commissions between the originator and the business.
B) Pays employee’s for loans the closed within the past 30 days, since doing so is a terrible way of managing cash-flow.
Step Three. Figure out a new compensation plan for your two ‘new’ originators (see below)…preferably one that pays them a fixed $ amount per loan closed, regardless of loan amount. This gets them focused on volume and away from the biggest, closest donut on the plate, as well as better aligns the interests of all parties involved: originator, wholesaler, and consumer. Adjust your compensation payment schedules (payroll) to remit the average of the three previous months gross commission total. For example:
Joe closed 4 loans at $400/per in month one ($1600 Gross), 12 loans in month two ($4800), and 8 in month three ($3200). Add the 3 months gross commissions and divide by 3. $1600+$4800+$3200 = $9600/3 = $3200 gross to Joe at the end of month three.
Next month if Joe closes 15 loans, the oldest month’s commission figure falls off ($1600), the next two back up and the newest months gross commission amount of $6000 is figured in…and Joe takes home a check for $4666.66.
This strategy, called a 3 month moving average (or 3 MMA), allows the business to manage cash flow better, avoiding the feast or famine dynamic that exists in too many mortgage offices.
Step Four. Rehire your two most seasoned mortgage originators. Benchmark test for a seasoned originator: They must be able to look at a 1003/1008, a Tri-Merge credit bureau and within 60 seconds know where the holes are (if any) and identify which 3 wholesale lenders are most likely to buy the deal.
Step Five. Rehire (and/or acquire) and overpay for at least 2 good processors. Good processors, the uber-organized people who actually turn mortgage files into loans are worth far more than a sales monkey, especially in 2008.
Step Six. Trash the ridiculous used car salesman marketing pitches. Open your Kimono and be honest with potential clients. Tell them how this business works, how you make money, how much you make…keep your pitch that simple. Then tell the potential client you won’t do business with them until they shop you against 3 other mortgage outfits, with one disclaimer…they can’t tell the next three mortgage pimps what you just disclosed to them, and then let them decide who they want to do business with. If they call back, they’re yours for life, if they don’t, you didn’t want them in the first place…
Not a bad idea, man, I think that this will get a response somewhere–either @ tendayteam.com or at genchris. Gist is not too far off.
We should become partners in this. I have been writing and talking about this for a long time. The current model is broken and you present an excellent solution. Mortgage professionals should not be paid on how high they can sell the fees or the rates. The consumer actually thinks, believes we work for them but our compensation model is adversarial to the client.
And thanks for recognizing that processors are the backbone of the business. They may not know how to bring the business in but they sure know how to close it!!!!!
Thanks!
[…] read a very interesting blog this morning over at the XBroker. Jeff over at the XBroker talks about some radical changes needed in this market to run a shop, […]
You have some excellent ideas, specially the ones about being upfront with your clients. I firmly believe in this as the clients that have stayed with me know that I will always tell them the truth and the ones that walked away realized they made a mistake and are now in trouble.
Keep up the good work!
i have owned a new york mortgage broker business for 20 years. for the past two years, i have seen this coming. I have lowered all sorts of overhead, from using cable for my telephone service (cut over $200/month) to buying my copy machines. I got rid of all but two employees and have my well paid and fabulous processor and my kid who does my marketing. I got rid of the salespeople years ago, because the $ that the brought me cost me too much in tome and babysitting. Unlike most, i have socked away as much money as i could to cover expenses comfortably next year. A perfect setup for scary times to come.