One of the pillars of TrustEngine’s Borrower Intelligence Platform is “Always Be Coaching”. This applies not just to loan officers educating and coaching their borrowers but to us as well, as we coach lenders on taking a data-driven approach to managing their business and improving Loan Officer (LO) performance. We have met with more than 50 LO’s in the past few months, and interviewed thousands of loan officers at all levels of experience for our YouTube channel, to better understand the differences between the highest-performing LO’s and those struggling to perform and move to the next level. At the same time, we analyzed the data to see if we could match what we heard from LO’s to standard performance measurements. What LOs have told us After evaluating Loan Officer feedback, we see 3 distinct phases of the LO career journey. While it would be easy to think of these stages as a linear chronology, the contributing characteristics of Loan Officer growth and success are defined more by behavior and outcomes than time. We found first year LO’s already acting as Trusted Experts, as well as highly tenured LO’s still mired in a transactional approach. Transactional Loan Officers Transactional loan officers struggle with both “the task and the people” part of the job, as one Loan Officer described it. “Overwhelmed” is a common term used to describe the struggling and low-performance LO. “Fear” and “frustration” are also common sentiments. Transactional LO’s struggle to act on the broad variety of customer situations and needs that come across their desk. Their fear of getting shopped can lead to a focus on rate over everything else, resulting in concessions and little advice or customer service. Many have not yet developed a repeatable process or approach, and tend to narrow their scope of work and focus on the familiar. They also struggle with the largest variance in how they are perceived; the key descriptives here vary widely from “paralyzed” to “lazy.”
Advancing Middle-stage Loan Officers are balancing a growing workload with a larger variety of customer needs, while learning to develop and manage a broader referral network. They have an established approach to both the structure of their day as well as how they approach a new customer, and routinely provide more options than the Transactional LO. Many Loan Officers at this career stage have found a mentor and learned to present the longer-term financial impact of different loan options. Advancing LO’s are looking up and out as they focus to establish a larger referral network and build a personal reputation and brand. They regularly collaborate with other LO’s and often engage in friendly office competition as both a challenge and opportunity for growth. They key in on the behaviors and best practices of expert LO’s, while working to implement these into their daily routine. There is much less reticence in the way the Advancing Loan Officer approaches client communication than a Transactional LO, and this confidence is evident in both their productivity measures as well as their ability to turn their attention to growing relationships and addressing a larger variety of client needs. Trusted Expert Top Loan Officers find a unique set of challenges juggling a broad customer base, supporting complex transactions, and maintaining an extensive referral network, all while managing their personal brand. The Expert is in the upper right quadrant of competence and confidence, and their performance often results in more profitable volume than other LOs. Many Experts are also managing a team of assistants and more junior Loan Officers, which is often described as both rewarding and disruptive. Trusted Experts are masters of context switching. They are able to present unique mortgage options and strategies as vehicles for financial security while also adapting their communication style based on client personalities and preferences. In parallel, their daily routine is no different, moving back and forth from consulting with clients, networking and managing their brand, and dealing with escalations and emergencies of less experienced LOs. “Working both on the business and working in the business is a daily requirement,” as one top producer described it. The dual nature of these responsibilities can be a challenge to both focus and efficiency, but the direct impact is difficult to quantify. What the data tell us There’s a fantastic line in the Talking Heads song Crosseyed and Painless that goes:
As we sought to dive into a quantitative and qualitative exploration of LO performance, these lyrics seemed more and more prescient. Our initial hypothesis was fairly straightforward: Loan officers with more time in the role and more expertise should close more loans, and in turn be more profitable. We also expected that the inverse would be true: loan officers with less time in role and less expertise would be less profitable and show a markedly higher cost per closed loan. We did not expect our findings to be absolute. As mentioned earlier, we had seen high performing LO’s very early in their career. But anecdotally the hypothesis seemed sound and we had qualitative feedback which aligned as well. We heard many variations of this, heard from a managing LO with 20 years of industry experience:
What exactly was the definition of issues? Time and again, senior LO’s and managers indicated that growing a low performing LO in capability and capacity means dealing with mistakes, concessions, missed opportunities, and a lot of hand-holding. We anticipated that we would see these stages of experience emerge along several dimensions. For example, we expected Transactional LO’s to have lower production in terms of applications generated, loans closed, rates sold, dollar volume, and to have a smaller pool of leads than Advancing or Trusted Experts. We looked at data from nearly 400 Loan officers across 3 different lending institutions (2 retail, 1 direct to consumer), looking at their performance from March – Sept 2023. We dove into the data, expecting to see some clearly demarcated indications of performance. As you’ll see here, what we found didn’t necessarily match the anecdotal picture we received from industry veterans. Being data-driven implies following the data wherever it leads–especially when the “facts don’t do what you want them to”. Power Laws and Population Means What we discovered was that there is not nearly as much separation between early and mid-career LOs as the anecdotal story led us to believe. Instead, LO performance appears to follow a power law, (or as it’s commonly known, a Pareto distribution, or the 80/20 rule, though in the mortgage industry it’s more like 90/10). In hindsight, this shouldn’t have been surprising, as this distribution of performance shows up in nature, sports, business, and practically everywhere you look. Where we expected to find 3 clear groups, we discovered a gradient–where some LOs are far outpacing the pack, and most everyone else is somewhere in the middle. It was also difficult to identify differences in performance between top-producing LOs and the remainder. We approached the question simply, comparing the average monthly application counts to performance indicators, like closing rate, and average rate sold. If loan officers are truly different along these dimensions, we would expect to see a bi-modal distribution (ie, a distribution with 2 different peaks) where lower performers and higher performers cluster around different averages. Instead, what we see is a normal distribution, where the average performance of high, mid and low volume LOs is basically identical. This isn’t what we were expecting to find, but it’s valuable to know that when looking at LO performance, the difference isn’t necessarily in their ability to get a loan to closing, or in the rates they’re able to sell. LO’s of all stripes follow the same averages. You can see this in the % of applications funded– And in the average interest rates at which they’re able to close loans. This same pattern shows in other sources as well. The chart below from MMI similarly shows that the vast majority of LOs are closing fewer than 30 loans annually, and even within the small group of top performers there are wide ranges of effectiveness. All of this is to say that if you want to get to the heart of loan officer performance, you have to find the right dimensions to measure on. Interest rates and funding rates can indicate revenue and cost respectively–but there are many other components of both revenue and cost. Our understanding of LO performance is as good and as detailed as the data we have, and we only expect those insights to become more targeted and mature with time. Jim Deitch, industry expert and author of Strategically Transforming the Mortgage Industry , 2018, has observed that the most prolific LOs are not always the most profitable. More detailed data about how these loans are sold and processed from our growing list of partners promise deeper and more impactful insights in the future. The Hidden Cost of Underperformance Each step in the LO career journey is represented by a marked increase in skill and efficiency. Transactional to Advancing to Trusted Expert is marked by by some key behavioral shifts. Establishing a consistent approach to the day and evolving from a process approach to a consultative approach marks the shift from Transactional to Advancing LO. The move from Advancing to Trusted Expert happens when the consultative approach becomes truly advisory, looking ahead to the impact of options on broader and longer life goals. This shift in expertise is also shown by key indicators in the data, but one common concern expressed by Expert LOs isn’t so easily charted. When asked what improvement would lead to a more successful day, “fewer interruptions” was the simple, straightforward response from one 20-year veteran producing LO and manager. Many Trusted Experts estimate the time spent managing and mentoring to be anywhere from 1-3 hours per day, but is much higher when you account for the context switching that occurs from interruption.
These inefficiencies align closely with the findings Deitch described in Strategically Transforming the Mortgage Industry, and in a recent conversation with our own Dave Savage. Deitch points out the huge disparity between top tier loan officers who drive the large majority of profit and the lowest-tier LO’s who actually drive profit loss. To achieve high profits, LO’s must have high conversion rates and low concessions, which Deitch singles out as the key levers of profitability. “Superior profitability [comes from closing] loans with a high contribution margin, with no defects, and with outstanding customer service,” Deitch notes. Looking back to the “task part and people part,” Transactional LOs are often ineffective in both areas, and their mistakes impact profits and steal precious productivity from top performers. Deitch further describes “strategic levers to achieve a lender’s goals,” among those strategy 3 “A lender can become technologically and process transformative” and strategy 6 “a lender can increase the level of relationship and empathy when interacting with prospects and customers.” This strategic focus on process and empathy aligns strongly with what we heard from Trusted Expert LO’s as they described the training and coaching they provide on a daily basis: reduce mistakes and coach on client experience. Repetition plus feedback equals mastery The data clearly indicates that as LO’s become more consistent, they become more productive. Transactional LO’s are inconsistent in both their approach to client conversations and their overall approach to their day. Advancing LO’s had a much more established routine gained from their time in role and strengthened through a more confident approach to client interaction. In the end, there are qualitative, behavioral elements behind the current measures of LO performance that can inform new ways to measure and inform value, but there’s also a deeper opportunity to strengthen LO performance overall. The current tool sets engineered for loan officers focus on facilitating a process approach to origination while supporting the presentation of loan options. However, none have yet cracked the code to help low and mid tier LOs grow the soft skills needed to build rapport and speak to the best loan options for their client. How to speak to the strategy, not simply create it, is the gap. The next generation of technologies will balance both sides of the mastery equation by helping Transactional and Advancing LO’s establish a repeatable process to present loan options, while also nurturing and teaching them the soft skills they need to become a Trusted Advisor throughout their career.
Since the first-order data doesn’t help segment loan officer performance in a clear way, we will report back as we uncover more layers of the data that reveal more qualitative segmentation. This is data we don’t track as we are focused on optimizing marketing and advisory sales in the upper funnel, but we do feel that there will be signal in the upper funnel as we better understand the sales and advisory process. The upper funnel, including marketing, is a part of the overall customer experience so it’s important to help all loan officers, new and experienced, get better at addressing borrower needs. The quality of experience in the upper funnel impacts profitability and satisfaction in the lower funnel, not just the number of applications. We believe by connecting sales with marketing, we will not ONLY optimize the upper funnel but also have a massive impact on the lower funnel of funding, servicing and retention.
