I was tasked a while back with writing the fraud prevention policy for a growing mortgage broker. My first thought was “Well, this is an easy one I can knock out in an hour.” But then I sat down to write it … No matter how much I wrote policies and procedures and created quality control (QC) review forms, I kept coming back to the thought that if you had to manage quality by trying to find and eliminate fraud, you were closing the barn door after the horse was gone. What I mean is that I believe the foundation for any fraud prevention policy is your corporate culture, and in particular, the way you articulate that culture to those inside of your organization.
Values start with the company mission statement
Start by looking carefully at the values you promote as an organization. You may have a mission statement, for instance. I would propose that your mission statement is the document that lays the foundation for your company culture. However, most mission statements that I read either fail to establish a culture of values-based business or worse, encourage a culture that doesn’t value ethics or quality at all.
For example: “We intend to become the leading mortgage broker in the greater Megalopolis area” is quite common, but hardly meaningful. How do you define “leading?” One person might interpret this to mean you will do more loans than any other, while another might interpret it to mean that you intend to do better loans than anyone.
An even worse (but common) mission statement, however, is one that says: “We intend to become the largest mortgage broker in the greater Megalopolis area.” While largest is open to interpretation, the clear message is that the company values volume over everything else.
A values-driven mission statement might include references to treating clients well, being honest or producing quality-driven loan packages. For instance, “We intend to be known as the go-to lender in the Megalopolis for honest, client-focused advice, efficient and seamless processing, with stress-free results.” This tells your staff that you want them to focus on doing their job professionally and trusting the rewards will come.
Write a mission statement that tells the world and your employees that you are a company that values ethics, professionalism and commitment. Then, post this mission statement prominently where not only the public, but also your production staff, can see it every day.
Values are communicated by the company recruiting system
While many companies claim that they want to be an honest, ethical, high-quality lender, their recruiting and human resource (HR) policies belie that claim.
Your company branding starts with your recruiting advertising
How many times have you seen recruiting ads start with “Top producers wanted.” Now I appreciate top producers as much as anyone, but when you lead with that, you tend to attract candidates for whom production volume is the prime directive.
Likewise, if you advertise high commission splits, you will undoubtedly attract some high producers and maybe some folks who care about quality. But you’ll primarily attract originators who care about making as much money as possible on each deal. I’m not saying don’t offer a high split … I’m saying you may not want to lead with that in your recruiting advertising.
Instead, craft recruiting ads to attract the attention of quality producers with phrases such as “make a difference” or “professional practice.” You will find a totally different kind of candidate responding to the ad. Look at your recruiting ads and ask yourself who you are trying to recruit.
Your conversation with candidates is the first QC gate
When I talk to candidates for the first time, I am sometimes amazed at what they say. I wonder if they think things through or if they have ever listened to themselves. Many of them ask only about money. When I asked them questions about their experience, such as “Where do most of your leads come from?” or “Do you specialize in a particular niche?” their answers reveal that their only concern was how much money they would make, not how we could help them serve their clients better.
The key, as in any interview with a candidate for any position, was to follow the 80/20 Rule—speak 20 percent of the time, and listen the other 80 percent. The candidate would soon reveal his or her nature. A candidate that is going to be a QC problem might specialize in a niche that carries typically high pay days, while a quality candidate would specialize in one that matched his or her technical strengths.
A risky candidate is likely to get most of their business from new sources, such as advertising or company-generated leads, while a quality candidate might get most of their business from past client or strategic partner referrals.
As you interview the candidate, listen carefully and they will tell you exactly what they intend to do by telling you what is important to them. Which is more important to them: Quality or income? Listen closely and they will tell you. Then, choose the candidates who care about their customers and have a long-term career point of view.
Your compensation policy reflects your values
You want your production team to produce high-quality, fraud-free loans, but I would bet that your compensation policy is invariably tilted toward rewarding production volume. There is almost no exception to this, and I’ve never really understood it.
If you provide resources, such as a desk, phone and computer to a loan originator, they must generate at least a certain amount of money to pay for it. On the other hand, we have all had high-producing agents that were far more trouble than they were worth. It’s what I have come to call the profit-to-noise ratio. Even so, we tend to develop our compensation policy to reward those who fund the most or produce the highest gross revenues. Rarely do we tie compensation into those factors that matter most to net profit: Quality of submissions, pull-through ratio or the future performance of mortgages originated.
Why don’t we do this? It’s really no harder to measure or reward, and it doesn’t preclude volume incentives; it can indeed enhance them.
In one company, I set up quarterly awards for certain performance metrics. The originator with the highest commissions generated won the “Big Dog Award,” and literally got to keep a giant stuffed dog at his or her desk for the next quarter.
The winner of the most creative solution for ethically solving a client’s challenge through creatively structuring a deal won the “Einstein Award,” and got to keep a large brain-teaser puzzle on their desk for the quarter. The key was that the solution had to be creative, and also had to solve the challenge in such a way that the solution was a clear win-win for everyone.
The person with the highest quality submissions, measured by the fewest number of “issues” per submitted file (as identified by the processors) got the “Excellence Award,” and kept a large model of an expensive Mercedes-Benz on their desk for the next quarter.
Each award winner also received a nice bonus check, right there at the awards “ceremony.” They could keep the check, but they had to fight to keep the Dog, the Puzzle, or the Mercedes-Benz model.
Build your compensation policy with the profit-to-noise ratio concept in mind
Compensate production, of course, but compensate quality and ethics, too. Consistently high-quality packages, high pull-through rate, and maybe even high customer satisfaction ought to be reasons for an originator to make a higher split … after all, they’re more profitable to you because of their quality.
You’ll notice I didn’t title this section “Your compensation policy should reflect your values.” I titled it “Your compensation policy reflects your values” because, whether you like it or not, it really does. If the only way for an originator to increase his or her income is to do more volume, what would you expect their priority to be?
Message from management—heard loud and clear
I’ve worked for at least two large brokers who had extremely clear zero-tolerance fraud prevention policies, who also had high-producing originators or teams that were flagrantly violating the fraud policies all the time. It’s painful to fire your rainmakers, I will admit. But the message was very clear: We want you to avoid fraud and turn in high quality loans, unless you are a really high producer. Imagine the irony … you want everyone to be ethical, except the originators who are exposing you to the most risk by producing the most.
Fighting fraud from the rank and file is much harder if you are turning a blind eye to it when it’s done by a high producer, or worse, when management engages in it.
Firing a high producer may be costly, but I believe it is less costly than having to put in place an anti-fraud system that is constantly at odds with your own internal culture. Be willing to let go of the bad players no matter how much revenue they bring in.
In summary …
Of course you have to have a formal zero-tolerance fraud policy, but that policy will be more difficult, more expensive and less effective if you don’t start by looking in the mirror and asking the question: “What message am I sending to my production staff?” That’s where you need to start.
Casey Fleming is business development manager for Comstock Mortgage. His primary focus is acquiring or building new Comstock Mortgage branch offices. Additionally, he develops training and coaching programs to help dedicated, professional loan consultants seeking to take their careers to the next level. He may be reached by phone at (408) 348-3442 or e-mail
[email protected].
