The Mortgage Banking CPAs Blog

Outsourcing Dominating The Mortgage Banking Industry

Nov 19, 2018 10:25:31 AM / by Mark Wilson, CPA posted in Loan Officer Compensation, Margin Compression, Mortgage, Mortgage Banker, M&A, MBA, audit, FHA, amb, Loan Vision, banking, QuickBooks, outsourcing accounting, outsourcing

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Throughout many industries, we see outsourcing occurring for a variety of reasons.

But what about the mortgage banking industry?

 

More and more, we see mortgage banking companies outsourcing their accounting departments. And since lenders are experiencing increased costs to produce a loan and a fight for new business, we’ve been observing those in this industry finding ways to save money while maintaining the same level of quality they’re used to.

Various factors come into play, causing banks and mortgage companies to fulfill their accounting needs elsewhere. With so many difficulties these companies are facing in relation to competition driven price wars paired with regulations threatening penalties for non-compliance, it’s no wonder why outsourcing is dominating the mortgage banking industry.

Throughout this article, we will examine the factors driving the outsourcing of accounting tasks and operations in the mortgage banking industry. With this analysis, we will explain the benefits that come with outsourcing an accounting department.

 

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Survey Results - Mortgage Banking Industry

Nov 5, 2018 12:18:08 PM / by Mark Wilson, CPA posted in Loan Officer Compensation, Margin Compression, Mortgage, Mortgage Banker, M&A, MBA, audit, FHA

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Recently, we conducted a survey to attendees at the MBA’s Annual Convention and Expo, acquiring some insight we’d like to share with you.

After talking with many attendees at the MBA’s Annual Convention and Expo 2018; it  was clear that many Mortgage Bankers are having  a difficult year.  The combination of rising interest rates and dwindling inventory has positioned 2018 as the worst year for the industry in almost a decade.  While most bankers are planning to “ride out the storm,” about a third are looking at some sort of merger, acquisition or sale.   Buyers however, outnumber sellers by almost 2 to 1. The fact that there are more buyers than sellers would indicate that the industry has not reached a level of capitulation that we saw in 2008.  “We’re experiencing a much more gradual decline than many of our clients experienced in 2008,” said Mark Wilson, CPA, founding partner at Mortgage Banking CPAs and Consulting. “However, the overall decline may be quite severe, it’s just taking the industry longer to hit bottom.Those looking to acquire other firms listed operational excellence and the quality of loan officers as the two most important factors when evaluating acquisition candidates, followed by historical growth and the quality of management talent.   While there are plenty of potential acquisition candidates with a strong bench of talent, few deals have been consummated to date.  “Many firms looking to grow will begin down the acquisition path, but never pull the trigger,” says Rich Mayberry, also with Mortgage Banking Consulting.  “At the end of the day, they ask themselves ‘what am I buying?’ and realize that the retention risk is just too great.  It’s a lot easier and less risky to hire a branch away from a competitor than to acquire a whole company.”  While Fintech and IT investments were the highlight of this year’s MBA conference, it does not appear to be a factor for those looking to acquire other firms.  Less than 5% of those surveyed said they considered Fintech or IT competencies when looking for an acquisition candidate. 

The mortgage industry overall remains traditional in how it conducts business.  Over 70% of respondents listed Loan Officer Existing Relationships as the greatest source of leads, followed by Builder/Developer and Real Estate Agent relationships.   A lot of emphasis has been placed on new innovative digital marketing approaches, but that appears to be more of a vision than a reality.  Half of all respondents said that less than 10% of their business comes through Social Media today.  However, 90% believed that Social Media would be the fastest growing source of new leads going forward. 

Many industry analysts do not see business picking up any time soon.  “It’s a very difficult environment,” says Wilson. “We’re seeing more and more clients coming to us with distressed businesses looking for a silver bullet.  We’re telling them to stay focused on the fundamentals: aggressive marketing, operational excellence and disciplined financial management.  Technology will continue to play a more important role in our industry in the future, but firms that aren’t bracing for another difficult year may not survive to see it.”  

Throughout this survey, our findings show various aspects of the mortgage industry. And we hope you can learn as much from the results of this survey as we have.

 

Q1 - Compared to 2017, is your origination volume (in dollars) increasing, decreasing or about the same on during 2018?

When asked how their origination volume (in dollars) is in 2018 in comparison to 2017, the majority of people surveyed have observed a decrease. While a good portion (35.71%) of those surveyed have not seen any impact on their origination volume, there was only a small group (21.43%) of people who answered that they’ve experienced an increase.

 

 

Q2 - Within the next three (3) years, how likely will your organization be involved with a merger or acquisition?

With this question, we requested some insight regarding whether those surveyed are expecting to be involved in a merger or acquisition over the next three years. The results were rather surprising, with no one stating they are definitely expecting to be involved in one.

With this in mind, some of those surveyed (21.43%) claim that they feel they are likely to participate in a merger at some point over the next three years. Other people (35.71%) were neutral, showing that they aren’t so sure about what to expect in the future.

The number of people (21.43%) doubting that they will be a part of a merger was rather high in comparison. They claim they believe it’s not likely and others (21.43%) state they see this as very unlikely to happen to them. Thus, these answers show us mergers and acquisitions are not so common.

 

Q3 - In the next three (3) years, will your company be a Purchaser, Seller or neither of another company in the industry?

Most people answering this question found that it was not applicable to them, showing the majority of people might not be considering purchasing or selling a company. Instead, they’re likely choosing to focus on building or growing their own business.

But for those who answered, we’re seeing the number of people expecting to have their company purchase another company within the industry far outnumbers those looking to sell. With this being the case, according to the answers we’ve received, growing a company through acquisition as opposed to selling off companies is trending.

Q4 - What are the top three (3) items that drive the biggest impact to a company's valuation? (Check all that apply)

When asked what the top three items that they believe drive the biggest impact to a company’s valuation, the majority of those surveyed (71.43%) agreed upon operational excellence playing a key role.

Following this are the company’s loan officers (50%), business model in place (35.71%), managerial or leadership team (35.71%), growth rate (35.71%), geographic originations (21.43%), use of Fin-tech (21.43%), proprietary IP or technology (14.29%), and servicing portfolio (14.29%).

With the importance of these variables taken into consideration, it’s essential to look at our own companies to ensure we are emphasizing excelling in these fields if we’re interested in eventually selling.

Q5 - Sources of current loan volume?

 

Source

0%-9%

 10%-25%

 26%-50%

 51%-75%

    >75%

 

Loan Officer's Relationships

0.00%

 

14.29%

 

14.29%

 

21.43%

 

57.14%

 

 

 

Builder/Developer

50.00%

 

25.00%

 

25.00%

 

0.00%

 

0.00%

 

 

 

Servicing Portfolio

90.91%

 

0.00%

 

9.09%

 

0.00%

 

0.00%

 

 

 

Social Media, On-Line Direct Advertising

54.55%

 

9.09%

 

18.18%

 

9.09%

 

9.09%

 

 

 

Real Estate MSA

80.00%

 

20.00%

 

0.00%

 

0.00%

 

0.00%

 

 

 

Telemarketing

87.50%

 

0.00%

 

12.50%

 

0.00%

 

0.00%

 

 

 

Mailers

100.00%

 

0.00%

 

0.00%

 

0.00%

 

0.00%

 

 

 

Other

50.00%

 

0.00%

 

12.50%

 

12.50%

 

25.00%

 

 

 

 

Do you ever find yourself wondering where people are getting their current loan volume from? Well, we’ve asked the question and received the answers to give you some insight.

Above are the primary sources of loan volume. According to our survey, the majority of people are receiving their loan volume from loan officer relationships. But this isn’t the only method.

Some of the other popular ways to get loan volume include from a builder or developer, a servicing portfolio, social media and online direct advertising, real estate MSA, telemarketing, and mailers. There are other unnamed methods as well, but those listed are the most popular.

 

 

 

Q6 - How will your future sources of loan volume change over the next three (3) years?

When it comes to predicting how their future sources of loan volume will change over the next 3 years, those surveyed believe there are some changes to be expected. A good portion (30%) of them said they expect telemarketing to decline. On the other hand, the largest portion of people (54.55%) state they expect social media and online direct advertising will increase.

As far as stability goes, a tremendous percentage (80%) of those surveyed believe Real Estate MSA will remain the same. With this insight, we see what the industry expects to fluctuate and stay stable depending on the source.

 

Q7 - How would you rate your loan officers?

When asked how they would rate their loan officers, we found most people (57.14%) found their loan officers average. While there was a good percentage of people (35.71%) believing their loan officers are above average, there were still some people (7.14%) claiming theirs’ are below average. Generally speaking, this shows us that there is generally a positive view of loan officers.

 

Q8 - Rank the most important qualities you look for in a loan officer?

According to those surveyed, the most important quality they’re looking for in a loan officer is for them to fit into their culture. Loyalty and dedication are also regarded as ideal qualities, as are their proven past performance and willingness to learn.

 On the lower end of the spectrum are intelligence and their level of education. But these qualities are still important. Branch leadership is also desirable, but it’s not a major priority.

Q9 - What is your primary strategy for recruiting loan officers?

Looking at the answers regarding the strategies used to recruit loan officers, we see the strategies these individuals find the most impactful. With using referrals and sales managers being the top ways to recruit, these are some strategies you might want to incorporate when you’re looking for loan officers.

 The answers here also provide some other strategies to try. Plenty of people utilize professional recruiters, but the options to use Linked-In and a training program are also used often.

Q10 - What percentage of loan officers have been with the company > two (2) years?

These answers show us that we can expect some loyalty from loan officers. With such a small percentage (7.14%) of those questioned saying between 0% and 10% of loan officers have been with their company for more than two years, the importance of building a long-lasting relationship with these individuals is easy to see.

In fact, we’re seeing 28.57% of those surveyed state over 75% of loan officers have been with their companies for over two years. Even with this being the case, the largest portion (35.71%) claim 26% to 75% of loan officers have been with them for beyond two years.

 

Q11 - What percent of new loan officers leave after:

Those surveyed gave us some insight regarding when we can expect new loan officers to leave as well. Over 45% of them say they don’t hardly ever leave. But the biggest percentage (upwards of 80%) say they leave within three months. In essence, the general consensus is that there is a high likelihood that a loan officer will leave fast.

 

Q12 - Please rank the reason loan officers are NOT a good fit for your company?

With this question, those surveyed show us what they look to avoid when hiring a loan officer. Difficulty fitting into the culture is the most obvious reason. But a lack of knowledge also plays a role in these individuals being a problem for the company.

Loan officers also can have high expectations and over-promise on loan volume. However, several issues that come into play here, including ethical challenges and other companies recruiting them.

What do you think about these answers? Do you agree with them?

If you have anything to add, reach out and give us your take on these questions. We’d love to hear from you.

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Loan Originator Compensation per Loan Could Decline by 40%

Jul 20, 2018 4:14:31 PM / by Mark Wilson, CPA posted in Loan Officer Compensation, Margin Compression

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The current compensation and performance model for Loan Originators across the U.S. is about to undergo a seismic transformation, according to mortgage executives attended the Western Secondary Mortgage Conference this week in San Francisco, CA.  Over thirty (30) top executives were asked about LO performance targets in terms of closed loans per quarter and median compensation per loan.  Responses varied by geography, business model and level of marketing support.  For example, the average target for a standard west coast LO who generates his/her own business was between 5 to 9 loans per quarter, whereas retail operations with strong lead generation engines had targets that were twice that high.    Compensation also varied widely by region, with average LO’s receiving 125 basis points per loan or less in some western metropolitan areas to over 200 basis points in parts of the Southeast where Average Loan Values are low.

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Growing Companies Pay Less Taxes in California. Here's how.

Jan 8, 2018 10:08:17 AM / by Mark Wilson, CPA posted in taxsavings, california taxes, business in california

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You may think to yourself…“We get so screwed by California income taxes!” If you are like most successful business owners, you are probably right! What if I told you there is a way to pay substantially less tax in California?

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How a Mortgage Bank Scorecard Helps You Increase Profitability

Nov 21, 2017 1:23:46 PM / by Mark Wilson, CPA posted in strategy

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As a mortgage banker, each day you are faced with countless critical decisions that determine the profitability of your company.

Here are just a few...

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