First Interstate Bank of Oregon lauched a unique compensation and sales strategy last week that the company said will create a "new army" of home loan officers for it.
The "Class of 94," a group of 15 new loan officers - with no mortgage lending experience - began a monthlong training program last week.
These loan officers will seek out home loan originations from real estate agents, builders, and developers - exclusively.
Experts say many leaders are looking for new ways to spur loan originations from home purchases.
Paid for Performance
The incentive program at Portland-based First Interstate, a unit of First Interstate Bancorp, Los Angeles, will encourage loan officers to originate many loans. The more loans originated, the greater their compensation.
Traditionally, lenders compensate loan officers based on the worth of the mortgages.
The incentives are divided into four tiers of compensation: Originate up to five loans, and the compensation level of basis points is lowest. Make six or seven loans, and the compensation improves. And if the loan officer originates 10 loans or more, a bonus is paid.
The 15-member squad will study mortgage lending eight hours a day for the next month. In the following two months, the loan officers will attend a handful of daylong classes. And after another month, all their income will come from commissions.
"I am combating the person who does two loans for $500,000," said Richard S. Anderson, senior vice president, First Interstate of Oregon. "I want to put more units through."
Mr. Anderson feels it's more important to keep First Interstate's loan processing operation humming than to produce fewer loans of greater value.
Carl D. Jacobs, president of Carl D. Jacobs & Associates, said paying commissions per unit is common among wholesale lenders. Mr. Jacobs said this method of compensation effectively captures market share in the new-home market.
Overstaffed lenders, plump from the refinance boom of the last two years, face severe employee cutbacks now that refi activity appears to have subsided.
Low Turnover Rate
First Interstate is one of the few lenders to keep its sales force on salary. And its turnover rate is less than 20% per year.
The compensation strategy at First Interstate doesn't appeal to Allen Gutterman, president of Response Professional Placement of New York.
Mr. Gutterman said tiered compensation programs often alienate staffers by giving choice leads to certain loan officers, leaving the others to fight over the scraps.
He said the better method is a more evenly distributed compensation system. And he said salaried loan officers - of which First Interstate has 50 - never originate as many loans, and of comparable quality, as a sales force earning commissions.
Mr. Anderson of First Interstate said his salaried loan officers have performed well.
He agreed that animosity can develop among a segmented sales staff. But he offered current employees a chance to enter the program before looking outside, and no one elected to join.