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Lender Trend Watch: Signing Bonuses, Structure, Data, and Tools

Even in today’s challenging market, high-producing loan officers remain in high demand, according to mortgage advisory firm STRATMOR Group. Recruiting them often comes down to the quality of the offer a lender can make. In its July Insights Report, STRATMOR Group Senior Partner Jim Cameron analyzes the industry’s approach to signing bonuses, offering insight into why some lenders pay and others do not.

His article, entitled “To Pay or Not to Pay: The Question of Signing Bonuses,” explores how signing bonuses are structured, and how new data and tools can help lenders understand more about the potential of the loan officers they are hiring.“It’s no secret that our industry is experiencing a very challenging market right now. We are seeing layoff announcements practically every day, and there are already a handful of companies shutting down,” Cameron writes in his article. “M&A activity has exploded as the industry begins to consolidate. We are in a classic downcycle with too many lenders chasing too few loans.”

Despite all of this, lenders still need and want high-producing, purchased-focused Loan Officers (LOs). Recruiting them will depend, in part, upon compensation. For high producers, signing bonuses have been a big part of the story.

Cameron says that will continue, but more for some lenders than others. For example, independent mortgage bankers (IMBs), and especially large IMBs, are more likely to pay signing bonuses to retail loan officers for several reasons. Signing bonuses do not match up well with the typical bank culture.

“In our experience, IMBs are more likely to ramp up and down aggressively as market conditions ebb and flow,” Cameron says. “They must — it’s a matter of survival. But banks don’t like to operate with an easy come, easy go, hire and fire mentality. It is well documented that banks have lost market share to IMBs and there are many reasons for this. The lack of willingness to pay top dollar for high producers is one of them.”

In his article, Cameron outlines the most common structures used to pay signing bonuses and how lenders can claw back some of this advance if the loan officer doesn’t perform or gets recruited away. He also looks into the financial considerations for the lender, especially in a market with declining loan volumes. His advice: make your decisions on the basis of better data.

“In the old days, lenders would rely on reviewing W-2 information and screenshots of production information from prospective LOs,” Cameron writes. “Since the LO’s license number is now attached to fundings, there is a wealth of data available to better understand important considerations such as purchase versus refinance mix, product mix and production volume trends.”

Cameron uses STRATMOR data to show how signing bonuses are easy to justify in a market with wide profit margins and high volume. Lenders paid large signing bonuses in 2020 and 2021 and he concludes that it likely made sense at that time but the current market is quite different. Volumes are down at least 50% for many lenders, and profits have deteriorated such that breakeven may be aspirational at this point. Additionally, leaders will find a way to attract the best producers and signing bonuses will be one of their tools.

Find the entire article in this month’s Insights Report.

A second Insights article by STRATMOR Customer Experience Director Mike Seminari, “The LO Survival Kit 2022,” encourages originators to not only demonstrate empathy to borrowers, but also to learn (or re-learn) how to have nuanced conversations around the complexities of the financial choices that lie before them. The problem: many originators have been feasting on the surplus of refinance loans for so long that they have forgotten these valuable “survival skills.”

To read the full release for more details, click here.

About Author: Demetria Lester

Demetria C. Lester is a reporter for DS News and MReport, with more than six years of writing experience. She has served as Editor-in-Chief at Northlake College and staff writer at her alma mater, the University of Texas at Arlington. She has covered events such as the Byron Nelson, Pac-12 Conferences, the Women in Dallas Film Festival, to freelance work with the Dallas Wings and D Magazine. Currently located in Dallas, Texas, she is an avid jazz lover and reader. She can be reached at [email protected]
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