Over the past twelve months I have had the pleasure of travelling the country and personally meeting hundreds of mortgage company owners and thousands of loan originators. While I heard a lot of frustration and uncertainty, I also heard a significant amount of inspiration and promise. One thing is for sure, the market has shifted and both owners and originators need to come together and work toward the ultimate goal of running a business that makes a profit. The magic must be replaced by math.

As a result of the recent slowdown, many loan officers have “jumped ship” for small increases in revenue splits or left the industry altogether. It’s human nature. If you can do less work for the same amount of money why wouldn’t you? Most of the time, the loan officer will take their customer base with them.

This creates several challenges, some are avoidable, and some are not. To replace the loss off revenue, the company must constantly recruit loan officers of similar quality. Due to current market conditions this means you must increase the new loan officer’s split or provide some other incentives to make him/her jump ship. Given the current level of loan officer splits this is almost impossible. And you know once you establish a split; you can never “pull back” without significant risk of losing that person. The dynamic that is created can be referred to as “the loan officer dependency cycle.” As the owner, you are constantly confronted with the choice of losing key personnel or increasing revenue share to the point of marginal profits. In investing this is referred to as chasing the last dollar.

Missed Opportunities

Another significant challenge is the notion that loans written by any one other than the owner are “their” customers. It goes both ways. Both owners and loan officers want to “protect” their customer base. This fragmented treatment prevents most companies from leveraging a low cost centralized marketing strategy that will allow both the loan officer and the owner to constantly market to ALL customers. It is understandable that self generating loan officers would rather risk a refinance opportunity than expose his/her pipeline to constant solicitation. The net result is missed opportunities and lost revenue for everyone.

Bottom line

This dynamic is a HUGE barrier to growth. I often speak to mortgage professionals who say their top priority in 2007 is to “grow their business.” A 25% growth target means 25% more loan officers, 25% more everything.

Trying to increase market share exclusively through recruiting can be a daunting task. Quick reference: look back over the last 12 months and determine the number of loan officers added vs. the number of loan officers lost, determine the net increase and the corresponding increase in business. Using this analysis, project the true potential of a 25% sustainable net increase over the next 12 months and the cost of acquiring that business.

A Few Questions

Most mortgage brokers refer to themselves as “self-gen” shops. They pride themselves on repeat and referral business that requires little or no fixed marketing costs. Their expenses are “variable” as a percentage of production. A few questions:

1. If you had a system in place to track every application closed or cancelled (and) a system in place to consistently market to these customers would you close more loans?

2. If you had a consistent stream of exclusive lead generation NOT dependent on any one individual, would it be possible to share a smaller percentage of the revenue?

3. If you had a lead management system and a low cost marketing strategy to attract new customers would it be easier to find and keep loan officers?

4. Would it be possible to eventually be in a position to hire and train your own loan officers?

5. Would it be easier to market to and retain customers of former loan officers?

6. What would happen if you spent more time “ON” your business and less time “IN” your business?

7. Would this give you a competitive advantage for production and recruiting?

8. Would you feel more in control of the future of your company?

9. Would you feel better about your ability to actually “GROW YOUR BUSINESS?”

10. Would this strategy be more consistent with your original vision of “Owning and Managing Your Own Business?”

The Counter Argument

Changing direction costs money and takes a great deal of effort. Consider this; you are actually spending marketing dollars right now in the form of increased splits to your loan officers. Growing a business requires capital investment, risk and ultimately vision. There are no sure things in life. Actually, there is one sure thing in life and it’s this: if we continue to do what we did in the past the best we can hope for is what we got in the past AND if the market has changed, the likelihood of achieving the same result is minimal at best.

The other side of the coin is the incredible upside associated with owning a business that is built on a great strategy, and processes and the right people to execute it. It always hurts when key people leave an organization; there is no way around that and when there is no formalized system in place for replacing the lost revenue the consequences can be devastating.

As we get set to tackle these challenges, I encourage every business to start with a vision and strategy that is system focused and gives EVERY employee the opportunity to achieve success WITHIN the system, as part of the team. This vision should incorporate specific expectations for every team member along with the support and guidance necessary to meet those expectations. If you do not create a vision and strategy, your team will create their own.