How do you communicate your strategic goals to your loan originators?
It’s not a rhetorical question — though it is a philosophical one. Answering it honestly will help you identify opportunities to better align your KPIs with your core values, which in turn will drive better business results.
Let's say you are a branch manager.
Asked what you expect of your team, you might answer that you expect high loan quality, 30-day turn times, and $2 million in monthly volume per LO. But if, like many mortgage managers, you pay LO commissions strictly off loan volume, and if you are not using balanced scorecards, then your other two expectations — high loan quality and fast turn times — are not being clearly communicated.
While this is a basic concept to grasp, it’s also easy to shrug off — after all, does communicating core values and expectations really matter, as long as LOs are producing?
If you care about not just top-line revenue, but also bottom-line profitability, then the answer is unequivocally yes — it matters.
Let’s take another example. Assume you have an LO who submits a ton of loan applications to processing every month. He or she generates really decent volume — maybe they are even one of your top producers — but a lot of the applications they submit are poor quality. They’re not the right product for the client, or they don’t contain all the required information.
This “throw spaghetti at the wall to see what sticks” mentality comes at a cost. The processor and underwriter will spend additional time working on this LO’s loans and coordinating with the borrowers, driving up your operational costs. The organization as a whole will allocate these costs to the P&L based on some methodology, but the LO will not be fully aware of the negative impact he or she has had on the organization.
All the back-and-forth will also extend the LO’s turn times. The delays will become frustrating for some borrowers, who may jump ship as soon as a friend suggests another lender with a reputation for closing loans fast. So how can you coach the originator to drive better behavior?
Motivating your LOs to work in a more thoughtful way is entirely achievable. The key is communicating your expectations — and then backing them up with KPIs that hold LOs accountable for more than just production. In addition to their incentive plan, giving them a balanced scorecard that assigns an appropriate weight to each of your values is the key to success. Providing feedback in concert with a score card is a powerful tool to engage and develop your team. If the LO from our earlier example could develop the skills to deliver better quality applications, then this could help the LO achieve faster turn times and result in higher pull thru. In other words, by improving the quality of their loans, they wouldn’t have to work as hard, and neither would the ops team. Stay tuned for my next post, where I’ll share an approach for doing just that.