Let Go Or Hold On?

The question is — should we let them go or hold on? There is no easy answer to this question, but I can think of a few factors that might affect our determination:

• How quality is the originator? Are the loans they bring in clean and easy to close, or do they bring in three loans which are a mess per month and barely close one? The latter is a burden on the operations staff and typically management, while the former is not.
• Do they add additional value to the organization? Are they a team player and or a leader in some way? Perhaps they mentor or provide a certain skillset.
• Do they have a track record and how strong is it? If they have been a productive originator for four years and presently they are in a slump, you are more likely to give them some slack. On the other hand, if they were on the margin even before the industry slump, you may have seen their best times.
• If they don’t have a track record, what is their potential? It is tough to break into this industry as an originator, but even tougher in an industry slump. You may give them more runway because of this — but eventually you have to face the “potential” vs. “cost” decision.
• Are there mitigating factors beyond the industry slump? Could there be health or other personal problems holding them back? You would need to assess these problems and their chances of being resolved.
• Speaking of costs — how much are you investing? A full-service lender might invest a lot of capital each month — draws, licensing support, technology and more. Is their production outweighing the cost? The investment for a broker who is an independent contractor might be significantly less.
• What about human costs? We spoke about the cost to operations, but what about your time and the time used by other members of the team. Time is our most precious resource and even if these loan officers are breaking even in other areas, all costs need to be accounted for.

We could go on, but I believe you get the message. At the end of the year there will be less originators in the industry — certainly, much fewer than two years ago. And at the current level of production, we are probably significantly overstaffed when it comes to originators. Many will leave voluntarily because they can’t make a living. You have to wonder how some are squeezing by on minimum draws to begin with.

And we know that there is a refinance boom coming after rates are scheduled to be higher for longer. It is not likely to rival the previous boom in size, but there will be food on the table for at least a slightly larger sales force. The problem is — we don’t know if this refinance period is coming in a few months or a year or two. Until then, many managers will need to face this question — let go or hold on!