Lori Brewer: Lender Staffing Data Signals Need to Automate Back Office and Monitor Performance

Lori Brewer is an entrepreneur and technology leader whose forward thinking has given rise to award-winning fintech applications including incentive compensation management platform CompenSafe and business intelligence platform LimeGear. With more than 20 years of mortgage banking experience, Brewer is founder and CEO of Inc. 5000 company LBA Ware, Macon, Ga., and a past recipient of the Mortgage Bankers Association’s Tech All-Star award. For more information, visit https://www.lbaware.com.

There was an element of déjà vu in how our industry responded to 2020’s breathtaking volume. Lenders staffed up across the board — especially in the back office — often paying a premium for skilled personnel who would likely not be needed even for a year. ‘Staff up and pay up’ is an age-old lender business routine. Despite digital advances in the borrower-facing mortgage front-end experience and remote-closing options that help meet physical-distancing requirements, the past decade’s innovations mostly bypassed lenders’ back-office operations. Mired in legacy workflow, it is no wonder lenders’ back-office operations were notably strained over the last 12 months.

Nor does it take back-office expertise to find the problem. You just need to understand the data. In this case, lenders’ staffing and compensation data clearly tells the back-office story. For example, when we look at 2020 aggregated data, we see that processors were staffed up more aggressively than other roles. Our clients’ volume was up 106% quarter-over-quarter from Q4 19 to Q4 20. However, the data shows that while lenders hired one person for every two processors already on staff — a 50% increase — only 27% more originators were added.

Taking it a step further, this data tells us that lenders hired 85% more processors than LOs to manage the 2020 volume increase. Lenders may know in their gut there is a problem scaling back-office operations, but this data confirms and helps lenders put words around that gut feeling. Learning from how staffing resources were allocated relative to volume can help lenders prioritize their next wave of infrastructure investment.

With processors and operational staff mostly salaried and receiving a per-file bonus and LOs typically receiving a low base salary plus a pay-for-performance commission formula (105.2 BPS was Q4 2020 industry average), it has made sense that lenders’ early digital innovation investments have applied to the demand side of the transaction. Not only is that where the customer enters the door, but also labor on the fulfillment side of the transaction is comparatively less costly.  Where staffing costs are lower, it is arguably easier to tolerate inefficiency.

However, during last year’s prolonged period of high volume, it became clear that there may be a fly or two in that ointment in the form of a seemingly disproportionate, attention-grabbing compensation imbalance and the risks presented by persistent back-office inefficiencies.

Per-loan bonus compensation earned by processors increased 21% to $128 per loan in Q4 2020, earning processors an average production bonus of $2,503 per month (vs. $1,569 in 2019). Viewed by outsiders, the imbalance between a monthly LO commission of $25K and processors’ incremental 20% salary bonus is profound and, making it even easier to misconstrue, tends to fall along gender lines in a male-dominated industry. “Bad optics,” as they say. As an aside, because our firm sometimes releases trend data, we’ve had multiple inquiries from news reporters about the spike in LO commissions, so it will come as little surprise if the topic garners more attention in the coming months.

Whether to stick with their current model or rethink compensation is a lender’s strategic choice.

However, lenders hiring their way through spikes in volume, as they have for decades, is a suboptimal, efficiency-draining reaction — not a strategic business decision. Any time lenders hire to manage temporary spikes in volume they reduce profitability, add enterprise risk and pour valuable internal resources into a hiring-firing routine that can destabilize and discourage an entire organization long after volume has normalized.

The good news is that scaling back-office activities is a solvable technology issue, which means there’s an opportunity for technology to do what it does best: remove redundancy, automate routines, apply rules, and in general allow people to do what they do best – engage human judgment.  Even where people are still needed to manage persistently manual back-office processes, data can help lenders apply human capital more intelligently and cost-effectively.

Anticipating that a 2021 purchase-dominant market will replace refis and overall volume will decrease, lenders will need to reallocate and perhaps reduce staff — whether that means selectively trimming based on performance or reassigning where agility is needed. The question for lenders is, given the different back-office requirements to manufacture a purchase, how can they balance workforce rightsizing?

Decisions about who to keep and where to reassign them need to be supported by operational data, not just potential loan volume.  Lenders may not be able to solve the back-office automation challenge in 2021, but they can take a more strategic approach to back-office hiring and retention with data-augmented decision-making.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)