Loan officers can expect signing bonuses to stay but shrink

Although leaner margins will drive down loan-officer signing bonuses, they remain a key piece of lenders’ plans to source talent, according to a new Stratmor Group report.  

In a profession where personal branding is valued as much as, if not more, than company affiliation, it’s no surprise mortgage companies use bonuses to recruit top producers, said Jim Cameron, a Stratmor senior partner and author of the report. Annual turnover among loan officers runs between 30% to 40%, with average tenures of three to four years. 

“Since high producing LOs will always be in demand and the ‘free-agent mentality’ of many LOs won’t disappear any time soon, signing bonuses will continue to be a part of the mortgage recruiting landscape for years to come,” Cameron wrote.

But producers shouldn’t expect the same large amounts issued during the hot market that started two years ago. When retail margins in 2020 and early 2021 ranged between 150 to 200 basis points, “it was not uncommon to see signing bonuses in the range of 75 to 100 basis points on volume, and some very large volumes at that,” Cameron noted.

“These ‘monster signing bonuses,’ as one lender recently put it, were paid out during this time frame but could be financially justified given the margin and production levels,” he said.

In comparison, 2018 and early 2019 saw profit margins in the range of 40 to 50 basis points, with signing bonuses typically between 20 to 30 basis points.

Market conditions in 2022 do not appear to support elevated bonus incentives either. Originations have plunged 60% year over year according to the Mortgage Bankers Association, with no turnaround expected in the near term. In the past week, researchers at the MBA, Fannie Mae and Freddie Mac all revised their forecasted volumes downward for the year. After finishing 2021 with estimated production of over $4 trillion, they now see originations coming in between $2.4 trillion and $2.8 trillion this year. Expectations for 2023 are even lower. 

Further volatility in interest rates or the home sales market would also extend the length of time to recoup any investment made when granting bonuses, which are awarded based on anticipated volume. 

“While the estimated reduction in signing bonuses is up for debate and may vary greatly by market and specific facts and circumstances, it is not hard to imagine that they are down materially given the drop in volumes and margins,” Cameron said. 

Lenders, though, are tapping into data more frequently to determine appropriate bonus levels, the report found. While in the past, mortgage businesses relied solely on W2 documents to set the level of bonus compensation, the proliferation of third-party data sources has given them access to more granular data, such as purchase-versus-refinance mix and individual producer trends. With loan officer license numbers attached to transactions, lenders are bringing the data to the table in negotiations. 

“While ubiquitous data on loan originators may level the playing field, it also increases the already sky-high recruiting intensity for top producing LOs in both good markets and bad,” the report said.

Some lenders, though, remain “philosophically opposed” to the idea of signing bonuses and the free-agent culture it perpetuates. Depository banks, particularly, do not seem aligned with the transitory nature of many loan officers’ career paths, according to the report. 

“Quite frankly, they don’t want loan officers who aren’t inclined to ‘wear the bank jersey,’” Cameron said. But that particular sentiment has contributed to the large shift in market share to nonbanks over the decade. Independent mortgage banks are more likely to lure loan officers with signing bonuses than depository institutions to be competitive, and the trend is set to continue. 

“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,” Cameron wrote.