The share of mortgage originations handled by banks is increasing. Sadly, banks are not always capitalizing on this trend as well as they should.

One mistake banks make in their mortgage lending operations is haphazardly staffing their branches with loan officers instead of using a by-the-numbers analysis to put the right people in the right places.

Banks are often committed to a sales model in which they assign loan officers to branches without regard to efficiency, operating under the mistaken belief that even the smallest of branches must have an assigned originator immediately available to take applications face-to-face. The idea that other alternatives can also provide high-quality personal service, or that good service need not be face-to-face, is lost on them.

I frequently see other structural and compensation issues with loan officers. In too many banks, mortgage loan officers merely harvest leads generated by the bank branches to which they are assigned. They do little, if any, sourcing of leads from third parties such as realtors, financial planners or even previous customers.  

This approach may appear to generate acceptable mortgage volumes in lower-rate environments. However, many banks tend to overpay loan officers for this type of referred volume. In the independent mortgage banking world, most loan officers are paid to both generate leads and convert those leads to applications. I see many instances in which bank loan officers perform only the latter function, just as a call-center officer might, but are paid as if they are performing both functions.

To make matters worse, most banks do not know how to supplement walk-in branch traffic using database marketing methods to capture a higher percentage of the mortgage transactions engaged in by their bank customers. This has three key consequences. First, they lose out on substantially higher mortgage origination volumes and the related scale advantages, both in secondary marketing and back office operations. Second, since the number of leads delivered to their retail loan officers are much lower than they could be, the bank winds up having to pay higher commissions in order to assure their loan officers of a decent wage. Third, they put their banking relationships at risk since customers may be more likely to take out mortgages with bank competitors.

As I wrote in my last column, the first part of the solution has to do with how the bank looks at the mortgage transaction. Banks must organize mortgage lending as a stand-alone profit center, not as just another product offered by the branches.  Doing this makes the potential for revenue growth from additional mortgage activity more apparent.

The second part is managing the sales team to the right metrics. Assign retail loan officers only to branches in markets with high origination potential and where the bank has a large share of the bank market. Consider asking loan officers to be responsible for generating business from outside referral sources, in addition to their branch coverage. Then use analytics to track how well they perform.  The best mortgage companies track their share of the market on a weekly basis. There is no reason that banks can’t use the same tools to track how well they are growing or losing share as the market changes.  

The third part is taking the actions necessary to maximize the bank’s profit on the mortgage transaction. In some cases, bank customers are willing to engage with a call center and don’t require face-to-face service for a new loan.  When that is the case, banks can take advantage of this lower-cost origination option, driving down their commission expense and increasing profits.   

But one note of caution—you can’t always “save your way to prosperity.” Pay mortgage personnel at or close to market, consistent with the size of your operation and where it is located. It’s almost always worth it in terms of productivity, cost per loan and customer service.

By taking a hard look at the approach to loan officer staffing and compensation–and carefully considering how best to serve the customer base using both branch and call center resources–banks can enhance volumes and profitability, as well as provide high-quality customer service.

Garth Graham is a partner with Stratmor Group and has over 25 years of mortgage experience.