The Latest Trends In Signing Bonuses

Lenders still need and want high-producing, purchased-focused loan officers.

Mortgage Banker Magazine
Mortgage Banker Magazine
A hiring officer reviews signing bonuses with a new hire.

Many Lenders Do Not Pay Signing Bonuses

In his report, Cameron says in his experience, many lenders are philosophically opposed to the notion of signing bonuses. While this may cause them to miss out on recruiting certain high producing loan officers, there are key reasons why they resist the temptation:

  • Negative impact on current employees
  • Perpetuates transactional relationship and free agent mindset
  • Shifts focus away from the value proposition to loan officer, including:
    • Culture of company
    • Manufacturing process
    • Competitive and consistent pricing
    • Good products
    • Superior sales support
    • Excellent sales and marketing technology tool
  • Dubious ROI — there are markets where profit levels can support signing bonuses, but this can change quickly, as Cameron is seeing in 2022.

In his article, Cameron outlines the most common structures used to pay signing bonuses and how lenders can claw back some of this advance if the loan officer doesn’t perform or gets recruited away. He also looks into the financial considerations for the lender, especially in a market with declining loan volumes. His advice: make your decisions on the basis of better data.

“In the old days, lenders would rely on reviewing W-2 information and screenshots of production information from prospective LOs,” Cameron writes. “Since the LO’s license number is now attached to fundings, there is a wealth of data available to better understand important considerations, such as purchase versus refinance mix, product mix and production volume trends.”

Retention Bonuses — What are They and Why Pay Them?

In his report, Cameron also looks at retention bonuses. He says, “As the name implies, lenders are compelled to pay retention bonuses when they feel that an employee may be at risk of being hired by a competitor. On the sales side, this often arises when a high-producing loan officer receives an offer which includes a signing bonus.”

The retention structure may include a combination of bonus and an increase in basis points of commission for a finite period. In many cases, the LO does not want to leave his/her company but has received a sizable offer that is worthy of serious consideration. Since the LO often wants to avoid the risk of switching employers, there may not be a need to match the competing offer one for one.

Cameron explains, “Of course, not every competitive situation results in the payment of a retention bonus. The lender is at an advantage here because they have data on the LO which allows for an informed decision.” Factors considered in payment of retention bonuses include the following:

  • Performance — Historical volume originated, purchase vs. refinance mix, profitability of loans produced, qualitative feedback based on interactions with others, etc.
  • Tenure — If the LO has only been with the company for a relatively short time and perhaps came in with a signing bonus, the lender may be less inclined to offer a retention bonus.
  • Influencer Status — Is the LO a key influencer with the rest of the sales force? Would their departure have a damaging ripple effect?

As one might expect, we are hearing that retention bonuses are on the decline as the frequency and level of signing bonuses has fallen off.

Cameron uses Stratmor data to show how signing bonuses are easy to justify in a market with wide profit margins and high volume. Lenders paid large signing bonuses in 2020 and 2021 and he concludes that it likely made sense at that time. But the current market is quite different. Volumes are down at least 50% for many lenders, and profits have deteriorated such that breakeven may be aspirational at this point. Even so, leaders will find a way to attract the best producers and signing bonuses will be one of their tools.

Mortgage Banker Magazine
Mortgage Banker Magazine
This article was originally published in the Mortgage Banker August 2022 issue.
Published on
Aug 16, 2022
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