One of the defining metrics of a lender’s success is its origination volume. The mortgage industry doesn’t measure success by the number of loans made in a given month, quarter or year. Instead, we as an industry have chosen to measure ourselves based on the total amount of loans issued over a given period.
I suspect this has a great deal to do with the fact that the industry’s sales force (i.e. loan originators) is paid on commission. What this also tells me is that there is a great deal of insight to be gained by comparing LO compensation against operating expenses and overall volume, a feeling that Houston-based Envoy Mortgage shares.
In 2011, Envoy was well on its way to achieving its goal of becoming one of the top 50 mortgage lenders in the United States. However, in order to reduce costs, Envoy had begun to push much of its workload down to the branch level, creating an entrepreneurial-type environment where each branch operated somewhat independently. While this approach had the intended effect of holding down costs, it also inhibited management’s ability to clearly assess branch operations on an individual basis.
In a case study we recently wrote, Jim Hopkins, regional vice president and head of operations for Envoy’s central region, summed up Envoy’s predicament perfectly:
"Basic questions like, who’s really producing what, where the problem areas are, or how much money is actually being made at the loan level could only be answered by pouring over months and months of data. It was such a complicated and cumbersome process that you just didn’t do it."
Having already deployed CompenSafe to automatically calculate commissions and bonus compensation for all its retail branches, Envoy’s management quickly realized that the platform could be extended to also provide transparency at the branch level so that management could get a clearer picture of each branch’s profitability.
Beyond the obvious, what I enjoyed seeing in this particular situation was how future-minded Envoy Mortgage was in their decision to start automating these rogue tasks and implementing metric-driven practices across all their branches. The connection between compensation and profitability is far more complex than it seems on the surface, and without the appropriate metrics in place, or the window into branch operations, using compensation data to assess profitability is all but impossible. As Hopkins pointed out:
"Before, if a branch was doing tons of volume but losing money, nobody knew why. The finance department might, but not your sales team; unless they were made up of forensic accountants with formal training into analytics. But what we’re able to do now with the software is serve up the exact data branch managers need in bite-sized, digestible pieces every day."