I was at an event recently and there was an audience of originators from credit unions, banks, and independent mortgage banks (IMBs). The organizer told me, “Don’t talk about comp. The IMB LOs all make 75 to 150 basis points per loan, but the bank and credit union originators make a $4,000 to $6,000 per month salary and 5 to 10 basis points. I don’t want the CU and bank LOs to know any better.” So how are originators compensated, given that personnel is the highest cost center for lenders and lenders are trying to cut their costs?
There are variations, of course, but the traditional method of a combination of a base salary plus basis points based on volume is still the predominant plan for lenders, large and small, almost regardless of channel and of geographic concentration.
That said, the variations come in a couple of areas. Some bank and credit unions compensate LOs with a base salary plus a lower commission rate—for example, a $3,000 base salary plus 60 bps on $1 million in production, resulting in $9,000 total monthly compensation. Other institutions offer a higher commission rate and a base draw, where the base is not in addition to commissions, but instead a guaranteed minimum (e.g., a $3,000 base against 90 bps on $1 million in production still totaling equals $9,000, but the base is absorbed into the commission earned).
A base of $3,000 ($17 to$18 per hour) seems like the most common amount but that may be moving higher as it’s below minimum levels (or will be) in certain West Coast markets for hourly wages.
Other variations use minimum unit numbers before the mortgage loan originator (MLO) is eligible to begin earning commissions. Generally, basis points vary in one to five tiers (most lenders appear to have two to three tiers) ranging from 40 bps to 110 bps at the higher production levels. Some have removed the base pay component from their lower producers and gone to a 100% commission model.
A few IMBs and some larger banks continue to offer signing bonuses, and basis points generally are only paid in the higher 80 to 100 plus tiers, but those originators have more expenses paid out of pocket. There is certainly competition between IMBs and the broker model, and their pitch to pay up massively on bps, as well as the lure that held for the IMB MLO in recruiting. Despite the low or no support model of the broker relationship, they were taking the money and leaving the IMBs more than they had previously seen as some were trying to squeeze all they could out of one or two deals a month. Signing bonuses have their own set of problems for both sides, and they are certainly not as enticing as they sound given the claw back periods and “invisible handcuffs.” Throughout 2022 and 2023 many originators found that the “grass is not greener” and stories of litigation overcompensation were plentiful.
Yet, in general, signing bonuses do not match up well with the typical depository bank culture, possibly because banks have multiple sources of revenue and expenses to consider. IMBs and brokerages are more likely to ramp up and down aggressively as market conditions ebb and flow, but banks don’t like to operate with an easy come, easy go, hire and fire mentality. STRATMOR data shows that average retail LO commissions in basis points of production have been somewhat steady in the range of 92 to 103 basis points (bps). Average annual LO incomes, as one might expect, peaked at over $170,000 in 2020 and 2021 but fell to $91,000 in the last 3 years as volumes have decreased (For more information on the next STRATMOR Group Compensation Connection® Study, email the Compensation Connection team.)
In our current market, capacity is no longer a problem (in fact, 2020-2021 was the last time lenders were raising margins to stem volume) as lenders took advantage of the refi wave. The MBA’s weekly application data shows that refinances account for approximately 35% of all first mortgage applications, and a considerable percentage of those have come through Consumer Direct shops. The big CD lenders (mostly servicers) have the staff and marketing muscle and have built out major “big data” or AI approaches to identify the most likely refinance candidates. Consumer direct operations have different compensation structures that, at 40 basis points, plus or minus, are relatively low.
Lenders who cling to paying 100 basis points for refinances will find it very difficult to compete with the big call centers, which pay dramatically lower compensation per loan. And they are increasingly finding it hard to compete with banks that also pay less and have some ability to cross sell mortgages to their depository customers.
STRATMOR is assisting companies in building a better, more streamlined process and in examining whether an overhaul of the compensation plan is needed. According to Senior Partner Garth Graham, “It is clear that retail sales costs have grown and continues to be the largest component of the cost to produce. While we see some evidence that sales costs are dropping as revenues drop and margins have compressed, it is highly unlikely that the percentage of sales cost to total origination costs will change materially. Sales cost will continue to be the biggest component. Given that sales cost will continue to be the largest component of retail origination costs, what can be done to manage this beast?” (Check out Garth’s article on sales compensation for more on how to “get what you pay for.”
As we move into the summer of 2025, margins remain compressed due to a combination of relatively high interest rates, fewer refis, and overcapacity in the workforce. Mortgage executives continue to examine LO compensation as a potential source of savings. Most lenders have slashed middle-management sales staff, and regional and divisional management positions are scarce unless tied directly to recruiting.
No one wants to be “the first penguin in the water” when it comes to cutting LO commissions. Can an independent lender lower its sales expenses to compete with banks and credit unions that pay MLOs 50 to 80 basis points plus a salary? The data and analytics are there for management to evaluate branches, either in recruiting new sites or putting up a fight in keeping existing sites from being recruited by other companies. The key driver here is high sales expense. Lenders have realized it and most have adjusted compensation. Analysts believe that massive changes aren’t necessarily needed, but there are reports of branches and regions accepting lower compensation structures for lower / more competitive pricing, increased advertising budgets, or servicing portfolio retention efforts.
As the ability to “dive into the numbers” has increased, lenders and vendors are in a better position to examine costs and have increased the transparency of margins and structures. Experienced LOs and sales management know that it is expensive to run a company, and appreciate knowing the costs of running the business, targets, and margins. Stronger use of analytics platforms helps guide mortgage executives to determine which LOs and branches are profitable with their compensation structure. This will continue in 2025 and beyond.
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