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00:10all right rich thanks for joining me hey it's my pleasure zeb so i was excited about the
00:15conversation our kind of our initial conversation um where i was sharing a bit of my background with
00:20you as uh as an originator but like most people and most originators uh that i know in the industry
00:28they got into the industry they didn't have a traditional business training and so you're kind
00:32of forced to learn i guess you know things that uh business training along the way you're like on
00:39the job and as a result a lot of backfilling of that information can lead to gaps and and uh
00:47and
00:47and areas of competency that uh we're trying to address today and teach when we're trying to say
00:53teach teach originators and branch managers to be more like uh more more like classic
00:58businessmen i guess than the uh backfilling and and learning on learning on the job yeah i think
01:03that's right zeb you know i'm i was a outsider to the mortgage industry i started my career at
01:08goldman sachs um doing securitization commercial mortgages real estate finance then i did distress
01:13debt work commercial real estate so when i joined the mortgage industry you know i was adjacent to
01:18it my career uh i'm not an outsider anymore i'm an insider now but you know i had to figure
01:22it out
01:23how does this industry fundamentally work and i remember this this presentation we're going to do
01:28today the four kpis every originator should needs to know is really inspired by a webinar i did back
01:33in 2018 with the macaulay garrett guys and they put on a webinar that i think was titled the 21
01:38kpis
01:39every mortgage lender needs to know and i was feeling pretty good going into the meeting we were
01:44growing if things are going well they introduced these concepts on the 21 benchmarks that are kpis you
01:49know that like one i didn't even know what they were two i didn't know how to
01:53calculate them and then eventually when i started doing it i realized i was not doing well and so
01:57that really became the impetus for this so then then i started to introduce those benchmarks to the
02:02company and we started like really running the company using numbers and very painful in certain
02:07circumstances because you can have the illusion that you're doing great until you realize that when
02:12you properly measure it if somebody's doing better you have to go okay what are they doing that i'm not
02:17doing and so fast forward about eight years that's really how we run the company now and i've
02:22started to teach originators at princeton hey these are the numbers that you need to know in order to
02:27outperform and you're right converting from a from just a salesperson to more of a business person
02:33makes a huge difference for originators and oftentimes you know i hear somebody's been in our
02:39model for six months or even people not at princeton i get like love letters i get some hate mail
02:43from up
02:43from sales leaders and ceos sometimes like hey shut your mouth but from loan originators i get love
02:48others that are like i'm so mad that i've been doing this for 20 years and never fundamentally
02:52understood this now that my eyes are open i'm making better decisions and so my goal today is
02:57the gift that i got from macaulay garrett when they introduced me to the kpis and mortgage lender
03:02needs to know kind of here are the four kpis that i think is an originator really help you understand
03:07how am i doing how am i doing with it right well let me ask you this whenever you started
03:12talking
03:12about this uh and and and introducing this was there any with with the originator specifically
03:18was was it all all all love even like from the get-go or was there initial either either hesitancy
03:25or a learning curve issue to wrap wrap heads around you know concepts that are not you know not native
03:33uh to uh to to a salesperson necessarily yeah it's a great point the you know a lot of what
03:38i'm going
03:39to be going through today really was developed in 2023 and and the reason was the market was a
03:45disaster right prince and mortgage my company was losing money branch managers were losing money
03:49originators were frustrated and i was trying to figure out hey how how do how do we navigate this
03:55market so we said hey let's start sharing information because what i realized is in conversations
04:01whether it's originator branch manager or company if and then you add the borrower and there's four
04:06parties to that kind of transaction and one or two of them was typically winning at the expense of the
04:13other two right so originator gets their compensation but borrower gets a bad rate branch manager loses
04:18money and the company loses money so hey instead of having these asymmetric conference conversations
04:24meaning information is power in that time i had more information than the originators had
04:29so so what they were feeling why can't we do this or why doesn't this work like hey guys let
04:35me just
04:35show you here here's why so that was in 23 um in 24 we kind of formalized a lot of
04:42this stuff in 23 it
04:43was informal conversation starting to like pull the curtain back and show people it's very scary i
04:47remember people telling me like rich you're crazy you can't share this information with originators
04:51like they'll take advantage of you the opposite has been true in my experience now naively i thought
05:00once i shared the information everybody would be like cool we see the problem let's rock and roll for
05:05with it uh it turns out though that that's true for about 60 percent of people for 40 percent of
05:11people
05:11they weren't in a win-win relationship they were really wanting to be in a i win you lose relationship
05:17and they they worked themselves out of the team and that was okay and so i think the cost of
05:21doing
05:21something radically transparent is that it's not going to be for everybody it's really got to be for the
05:27people that want to enlarge the pie not increase the pie at the expense of somebody else right that
05:33that leads kind of into is the last question that i was going to ask you before we dive into
05:37it
05:37for from an originator's point of view or standpoint is this a platform or platform methodology that
05:43applies to that every originator can begin to use or are there certain uh structures or models in
05:50which originators work within that that this might be harder to integrate or they can't integrate
05:56this into their into their business planning and uh and into their store overall methodology what i
06:01want to do is educate originators and say in order for you to know how you're performing right and so
06:07to me the the gold star i can as an originator is i'm making above average compensation selling below
06:14average rates and in order to accomplish that in a sustainable way for the long run you have to have
06:20some more information so that you can make better decisions and so what i'd say is it's possible for
06:24originators if they have the information and have some autonomy to control some of their inputs if
06:30they have no autonomy and no information they're not in a position to be able to better themselves
06:34excellent all right well let's dive in all right so to kick things off today you know what we're
06:38talking about is the four kpis i think every originator needs to know if they want to accomplish
06:43that gold standard which is hey can i outperform on income and can i outperform on rates same thing
06:48for prince and mortgage as the as the ceo and owner i want to do two things i want to
06:52be able to offer
06:53better rates to our borrowers and i want the company to have above average profits you got to work
06:58really hard to do that in commoditized business and so to just introduce a couple of concepts here
07:04the four kpis we're going to go through are the gross revenue per loan this is something that's still
07:08uh kind of shocking to me when i talk to originators that they don't know right that's something that
07:14they're they're like i have no idea what i'm producing and so uh that's not a secret at
07:21prince and mortgage everybody knows that it's also pretty easy to triangulate back into that using
07:25nba data wholesale data looking at what brokers are selling like that's a knowable type of information
07:32so you just want to know hey on a per loan basis and an aggregate over the course of a
07:36year how much
07:36revenue do i produce you know um i think the really important second kpi is all right for compliance
07:44reasons and the way that the industry runs of course you need to get paid in basis points
07:47but it's good to know from a kpi perspective what percentage of the income am i keeping
07:52and so as a mortgage company owner my scorecard is what is my profit margin simply how much do we
07:58make as a percentage of our gross revenue the industry is running at a five percent profit margin
08:03in 2025 10 is considered okay 15 you're doing well so you kind of know the bands as a mortgage
08:11company
08:11um so i think you can it's very powerful as an originator basis points don't tell you anything
08:16if you're earning a hundred basis points and you're holding 400 basis points of margin that's not that
08:22good if you're earning a hundred basis points and holding 250 basis points of gross margin
08:27that's really good and so i see originators not be able to evaluate their compensation because they're
08:33missing the numerator which is hey what's the gross margin that i'm holding and so what percentage
08:38of that am i actually earning so you think about earnings margins similar for an originator is
08:43similar to a profit margin for a company and i like to think of loan originators not as salespeople
08:48but as business people and entrepreneurs and so okay how much of the revenue that you're producing
08:52are you keeping now the two drivers of the earnings margin really the three drivers is what's your revenue
08:59that you're holding what's your sales costs right so i think that's an important piece of it
09:04and i sort of developed this thinking when i when when 23 was going on and everybody was talking
09:10about corporate margins well corporate you know your margins are driven by your expenses and
09:15corporate's only about one third of the total expense right so if you think about it a third
09:19of the expense is corporate a third of it is the non-sales i'm sorry the non-commissioned sales
09:24expense and a third is the loan originators expense very simply put in 300 basis points of gross
09:29expenses 100 basis points of comp 100 basis points of sales expense and 100 basis points of corporate
09:35expense well if you want to outperform you gotta look at that number that the sales team has is their
09:43their expenses per loan because it's about a third of the expense and so if the company if it's if
09:48you're
09:48expecting your company to do everything on the expense side they're only able to tackle one third of
09:54the expense okay and then the other piece of that is the corporate overhead right so what's my
09:59corporate expense per loan what's my sales expense per loan what's my gross revenue those three
10:04levers are really what drive the rates and the and the uh originator compensation of these of these
10:10four kpis from your experience i don't know how many people you've talked this to by now at this point
10:16but which of these kpis is the most uh foreign i guess to originators all of them most in my
10:24experience
10:25most originators don't know their true gross margin right they've got an idea of it and that's where
10:30i get a lot of people reaching out like just hey rich they tell me i'm at 270 gross margin
10:37you know
10:37sales plus corporate can we just do like a price check and sometimes it's 270 and sometimes it's 340
10:42right 350 400 that type of stuff and so um that's kind of like a secret in the mortgage industry
10:49that
10:49companies tend to hold under lock and key is like what's the actual margin that the originator is holding
10:54and then their sales costs and their corporate overhead if you're if you're an originator not a
10:58branch manager as a branch manager you tend to know your sales costs per funded loan but oftentimes i
11:03find that they don't want to share that information with the loan originator because there's usually a
11:08lot of fat and inefficiency in there particularly around a top producer is typically subsidizing the
11:15inefficiencies of every other originator in that branch that's where it gets really powerful if you're
11:20like the top originator in a branch and you're not the branch manager that's usually the biggest
11:26opportunity for somebody to go wait a second i might be leaving two or three thousand dollars on
11:31the table on every single loan that i can either plow back and read to the borrower or i could
11:35earn
11:35more compensation if i was in a more optimized type of situation so i got i have two questions one
11:40to set
11:40up uh just for myself and to set up uh the audience as well the data sources i know you
11:46mentioned
11:46nba but you also had a couple other data sources all of this data should be available to originators
11:52and what what data sources do you recommend if they're gonna start implementing these kpis yeah
11:58so i think first your own company right you should be i believe you should be able to get this
12:02information from your own company and if you can't then you got to do a little bit of work to
12:05benchmark
12:06it and so you know you can reach out to people like me can give you this information we can
12:10i can
12:11triangulate into it in about five minutes it's not hard to do also you know i look to read all
12:15the
12:15public companies financials and so you can go look at loan depot penny mac uwm a guild not any
12:21longer but that gives you a real sense of hey what's the industry holding and i like to think
12:26about the wholesalers particularly uwm and penny mac because they break penny mac breaks out their
12:31wholesale margins and so you can see like when brokers are like hey you know we're only at 275
12:38well it's not true because uwm and penny mac are holding like 100 to 130 basis points right now you
12:44got to add those things together and so so with a little bit of work you can triangulate but at
12:49the
12:49same time your company knows all these answers uh well then i have another question but i want to get
12:53into it so we'll put a pin in it i wanted to discuss with you your in your best practices
12:58or
12:58recommendations when you're dealing with your company or corporate that's reticent to share some
13:02of the data that they don't necessarily they won't voluntarily share but we can talk about that in a
13:07bit yeah look i'm biased on that answer information is power and so if people are not sharing
13:12information is because they want to retain power and so then you have to decide whether that's the
13:16environment that you want to be in i don't think it's more complicated than that so just to give
13:19a little bit of context of where i'm coming from today and um a couple facts prince and mortgage was
13:26profitable last year we had a profitable q1 and i share that because um when when recruits hear about
13:34and originaries hear about the kind of economics we're able to deliver the the marketplace was like oh well
13:39that's not sustainable or they're not making money that's not true it is sustainable we are making
13:43money and so i want to leave that this is an actual uh originator economics that's going to back up
13:49kind of what i'm saying and so this is an originator that joined us mid 25 and he was making
13:55about 90 basis points with higher rates than he's selling today and so this originator is selling sort
14:01of market rates within an eighth either direction and so he's choosing like when you get expenses lower
14:06there's two things you can do give dramatically better rates to the borrower or you can make more
14:10money per loan or a combination of those two things and so this originator in february did 16 units for
14:16about 8 million um and he was able to make 175 basis points on that by selling market rates the
14:23nba tells
14:24us that the the average originator on this volume would have made 79 000 versus 140 000 bucks and so
14:32that's
14:32a 61 000 delta and i know it seems like magic it's not it's math and and the big takeaway
14:39that i want
14:39to introduce to people is that the earnings margin so this originator took home 57 percent of the gross
14:47revenue the nba average which we're going to get into is about 27 to 30 percent of the gross revenue
14:52is it from selling higher rates no it's from a dramatically better cost structure and so in this
14:58situation the sales costs of goods sold were around two thousand dollars and that's that's about as good
15:04as i've seen get and and so you can think about well what's the sales costs of goods sold it's
15:09all the
15:09expenses that the loan originator is in control of right and so what are the things that they can
15:14influence the industry average is about thirty eight hundred dollars alone about a hundred basis points
15:19that's why you see the typical branch margin is about 200 to 225 basis points supporting about a hundred
15:26basis points of loan originator compensation in this situation it's only 40 basis points so you're
15:33outperforming by 60 basis points there and um you're picking up 214 on the top side so then not like
15:40selling higher rates but the loan originator can earn dramatically more money uh by by being in a very
15:46optimized model both in the corporate margin side and on the sales expense side so this is the kind of
15:51credibility to say this is what happens when you pay attention to these kpis and optimize them within
15:58six months you go from making 90 bips to 175 bips on the same exact rates to the market all
16:04right so let's
16:04talk about uh just a little bit of background for what we're going to be talking about today i'm going
16:08to go through pricing scenarios gross revenue per loan and those types of things i based everything
16:13um on 318 that's when i price these loans the rate sheets i'm gonna show and i'm using just the
16:18vanilla nba average loan um so i'm using best efforts pricing conventional 30-year 30-day lock
16:24average loan size of 373 a credit score of 780 so just very vanilla this is what the nba says
16:31was
16:31the average loan last year the important takeaway from this slide is the market rate on 318 was around
16:386.26 according to housing wire and mortgage news daily was at 6.375 essentially so that's that was what
16:45the market rate is and so let's see what that means the first kpi that i think every originator needs
16:50to know is the gross revenue per loan this gets like this is this magic hidden number that people
16:54don't know it's really not that complicated and so what we know is that the nba tells us that the
17:01average revenue per loan in 2025 was 12 920 or about 13 000 bucks a loan and so if you
17:08don't know a
17:08number what to use you should use 13 000 bucks a loan that's kind of what the average was and
17:13your
17:13loan originators are probably that what drives that number the rate that you're selling the loan
17:19size and your product mix right and so those are the three variables that drive that number but on
17:24average it comes out to 12 920 or 346 basis points on the average loan amount what that means is
17:31that
17:31an originator who's doing 80 units a month 80 to 85 units a month is doing over is producing over
17:37a
17:37million dollars a year in revenue to put that in context a million dollars a year in revenue is larger
17:43than 96 percent of businesses in america right and so that's that's a really fun conversation to have
17:50with originators when it's like hey you're you're not just a salesperson you're running a million
17:55dollar a year revenue business which puts you in the top four percent what do you mean i produce a
18:01million dollars of revenue like 13 000 alone times this many loans you get to a million bucks and that's
18:06the first thing that you want to know is on a per loan basis how much revenue am i producing
18:11and then
18:12overall the course of a year how much revenue i'm producing because now you start to change the way
18:17that you're thinking about things instead of just like hey i did 50 million or 20 million or whatever
18:22it is like this is how much revenue i'm producing it's a you're this an originator doing 85 units a
18:28month
18:28is a is a business so when we dig into that right you got to understand what does it mean
18:35revenue per
18:35loan okay so the mba tells us um that is 12 920 what's really fascinating about that is using nothing
18:45but the average cost i can back into the market rate okay what do i mean so this is just
18:51a rate stack
18:52this is what capital markets people see this is when they log into ob and they look at it like
18:56hey this
18:56is best efforts pricing the higher the interest rate the more revenue that that loan produces
19:02okay so we can see that the market rate was six and a quarter to 6.375 six and a
19:09quarter produces
19:10ninety five hundred dollars of revenue and then you want to add the fee income into that you know we
19:14typically charge 15.95 so you say 95 the company would expect revenue of ninety five hundred dollars
19:20when they sell the loan plus the fee income so that would bring you to around a little over 11
19:24000
19:25bucks if they're selling 6.375 um that would be eleven thousand six hundred dollars you add in fee
19:32come and you get to thirteen thousand two hundred that's what the market said you know the housing
19:37wire and mortgage news daily said was the market rate amazingly that averages to twelve thousand two
19:42hundred dollars so really what we're saying is when the market rate was at six and a quarter to six
19:47point three seven five that's the rate that produces about twelve thousand dollars of revenue
19:52which is what companies need to pay all their expenses and produce their profit margin and so
19:57if you want to be able to sell six and an eighth in a market that's pricing at six and
20:02a quarter to six
20:03point three seven five you got to be eighteen hundred to thirty six hundred dollars better than the
20:08the average cost right because your cost drives your rate and i think what's a really interesting
20:13takeaway from this is that you look at each eighth in rate increase it averages eighteen forty five and more
20:19revenue so every eighth higher brings you in on average around eighteen hundred bucks on your
20:26average loan amount of three hundred seventy five thousand bucks and if you can be an eighth to a
20:30quarter better that's what you need to do to go out there and really grow volume and it just it
20:35makes
20:35everything else easier because your referral base grows your retention grows customers come back to i mean
20:41the worst thing is when the market's at six and a quarter six and three point seven five and i
20:46mean there's a lot of
20:46people that had to sell six and a half or to sell six and a quarter six point three seven
20:50five they had
20:50to charge points that borrower feels great they love you you became their best friend you consoled
20:56them about their financial situation you did credit repair you do all that work a week or two later
21:01they're at a dinner party and they tell people oh yeah i just refinanced or i just bought a home
21:05somebody
21:05says what's your interest rate we're like dude you overpaid that customer hates you now and so the
21:13ability at the end of the day i heard stan middleman from freedom say this back in like
21:172019 at a conference he was like guys we sell money and the price is the rate right we sell
21:25money and
21:25the price is the rate service matters relationship matters marketing matters all of those things but
21:30in a commoditized market i think it's really difficult and so but not only not only that that
21:37you need to be better in rate because most loan officers can sell the market rate i don't have a
21:40problem with selling the market right i think you need to be able to sell sub market when you need
21:43to it's a competitive situation what's more important is that if the market's at six and a
21:47quarter and you're selling six and a quarter and the average comp is a hundred basis points at six
21:51and a quarter but because your cost structure is lower when you sell six and a quarter you're making
21:56125 or 150 basis points that's really powerful all right well talk to me about uh talk to me about
22:02the revenue swing so what gets really interesting on your average loan right each eighth brings in
22:07another 1850 dollars in revenue 1845 when we start talking about bigger loans it gets wild and so
22:16here's the same rate stack on an 832 000 loan right so now when we start talking about five six
22:23seven
22:23eight hundred dollar loans each eighth in rate right so you can see five and what this means in case
22:28somebody hasn't seen it before is that the company if you lock the loan on 318 at 5.625 the
22:34company
22:34would expect that to generate um 2 186 dollars in revenue hey can't do that right without charging
22:42points could you do 5.875 yes there are models where you could do you could bring in 9 500
22:48bucks
22:48in revenue plus fee income gets you that 11 000 number that number works think about it this way
22:54the average revenue on a 300 000 loan is 9 500 why can't you do that on an 832 000
23:00loan you can you can
23:01we figure that out what that means though is that the gross revenue is only 114 basis points and if
23:07i said to most people we can do loans at 114 basis points they're like that's impossible i mean branch
23:12margins are typically 200 basis points how could you do the entire loan for only 114 well you can if
23:18you get your cost structure right and and so but the driver here is that the market was at six
23:23and a
23:24quarter to 6.375 on this loan when i priced it that means it's bringing in 20 000 to 24
23:29000
23:30dollars in revenue plus fee income that's where some of the big inefficiencies go and so it gets
23:36easier to be much more competitive on larger loans because each eighth and rate is worth 3 500 bucks
23:43versus your average size loan is only worth 1800 okay so once you understand your gross revenue per loan
23:51you can start you can start backing into well what am i keeping as a percentage of of the gross
23:56revenue
23:57and what is the average right what is the market saying because i think if we don't know benchmarks
24:01you can't know if you're underperforming and outperforming i think sales people generally are
24:05pretty competitive people you want to outperform the average right nobody goes home hey guys i'm doing
24:10average all right what's your earnings margin and the earnings margin is how much of the revenue that
24:15the originator actually keeps and so let's dive into that okay so the nba lays this out really nicely
24:21for us uh they tell us in 2025 that the average revenue is almost 13 000 bucks the average commission
24:26was 37 77 which comes out to about 100 basis points on the average loan amount of like 375 000
24:32if you just divide those two numbers 37 77 divided by 12 920 that tells us that the average earnings
24:40margin was 29 said another way the originators took home as compensation 29 of the gross revenue so now
24:48you want to know on the first slides where i went through hey what's your gross margin you know am
24:53i
24:54holding more or less than the market average when it comes to gross margin if you're holding more
24:59that means you're selling higher rates than the market average then we once we know that number you
25:04get to say okay well based on the margins that you're holding the gross revenue that you're producing
25:08how much do you take home and the benchmark for that number is 29 that's what the average is last
25:13year forget about the comp plans what's your w2 say at the end of the year and divide it by
25:18your
25:18your total gross revenue right so in that first example we gave we said hey doing 84 units a year
25:24produces about a million dollars of revenue um and if you earn 200 if your w2 said 290 000 whether
25:30it's a combination of bips and bonuses and salaries and whatever it is what's your w2 tell you at the
25:36end of the year and divide that so in this situation you would expect the average originator or sorry
25:42the originator who's producing a million dollars of revenue is earning 290 000 if you're producing a
25:48million dollars of revenue and earning 350 your earnings margin is 300 is 35 if you're doing a
25:55million dollars of revenue and you took home 200 000 your earnings margin is 20 and so you want to
26:00start to look at just simply at the end of the day your w2 divided by the gross revenue and
26:06then you
26:06you can you can say am i above or below average and if you're below average and so what i
26:11see is
26:12originators who think they're compensated very well i make a 150 basis points that doesn't tell me
26:18anything i need to know what percentage of the revenue that is and let's say they were holding
26:23425 basis points when the market's at 350 well their earnings margins actually below average so they
26:29thought they were doing really well on comp but they're not because they're selling really high rates
26:33and when i and then that causes all sorts of other problems there so this is that benchmark to say
26:38all right am i am i above or below average in my compensation relative to the revenue that i'm
26:45producing and it's a very clean and honest number that takes out all the noise about comp plans and
26:51gimmicks and incentives and bonuses and things like that what's the the so this is the uh is the average
26:57earnings margin but what's like a realistic uh spread i guess like on the from low end low to high
27:02so the the this is pretty average this means the guys make the the originators making 100 basis
27:09points out of a gross margin of like 300 to 350 basis points so this is your very vanilla like
27:15most originators fall into this bucket um what we've been able to to do in reality is through
27:22operating really well if i go back to this slide the the best that i can get to is an
27:28originator taking
27:28home 57 of the gross revenue so you can 2x that number if the average is around 30 i can
27:35get it to
27:35about 57 this is about as optimized as i've been able to get it and you know we'll see where
27:41ai goes
27:41and we'll have this conversation in a year i think if you're doing anywhere in the 40 range and above
27:48you're doing really pretty well and so that's that's kind of what i laid out here and so what it
27:53means is
27:53that if an originator is earning 100 basis points of compensation right and still using that same
27:58example of 318 pricing if they're selling a 6.375 rate and they were earning 100 basis points their
28:05earnings margin was 29 okay however if they were if they were selling a 6 rate and and holding 100
28:14basis points of comp their earnings margin goes to 44 and that's where this gets magical it's not so
28:21much what's your comp it's what's your compensation as a percentage of the revenue and the revenue is
28:26driven by the rate that you're selling and so i would much rather me baking 100 basis points selling
28:31a 6 percent rate or then making 100 basis points selling a 6.375 percent rate and so the higher
28:38earnings margin gives you much more pricing power and to be able to earn the same compensation
28:43at a at a lower rate than the market selling this is what i think the best strategy is i
28:49don't i think
28:50that if you want to look at your total income right this guy this originator is selling more loans than
28:57this originator because they're offering better rates just elasticity of supply and demand it's
29:02easier to grow when you can undercut the market and not have to give up any compensation the way that
29:08you do that is to have lower expenses in a more efficient model so when we look at that we
29:12can start to
29:12say okay what does this actually mean in reality well it means let's hold the compensation constant
29:18at 100 basis points and this is that same rate stack on the 377 uh 375 000 loan this says
29:25if you're
29:26selling six percent right your gross revenue is 225 228 basis points if you're earning 100 basis points
29:33you're taking home 44 of it at 5.875 which is like this is really tough to do gross revenue
29:41of 172 paying
29:42the yellow 100 bips they're taking home 58 of the revenue in that situation this is possible very
29:49hard to do that requires a real partnership between the company and the originator to run a very efficient
29:54model and you can get that done the market is right here six and a quarter to 6.375 right
30:02300 to 350 bips
30:03the loan officer is keeping you know 29 to 34 percent of it so you can see just by using
30:08expenses
30:09driving that into the rate stack we find out the average earnings margin in the industry backs right
30:14into it and so these things go together and it's sort of like the more you know the more power
30:20you
30:20have to make better decisions on and be able to outperform where are people lowering their expenses
30:24or where do you recommend people look to begin lowering their expenses we will get into that in kpi
30:29three and four so there's two big drivers here um that that drive a higher earnings margins essentially
30:36if you have lower expenses than average you can sell the average rate and have much higher earnings
30:42and so the first one that i think is is really important is the sales cost per funded loan and
30:47this
30:47is saying let's exclude compensation right the ellis compensation look at what is it costing to produce
30:53that loan on the sales side and so the nba tells us that the average is is 3 800 which
30:59hey by the way
31:00makes sense average branch margins 200 basis points you sell uh the loan officer gets paid 100 basis
31:06points your expenses are 100 basis points in that model the average loan amounts like 375 000 you get
31:12to the 3 800 number what i showed and i opened this up is you can get that number down
31:16to 2 000 and that
31:18includes um sales management compensation unrecouped borrower expenses you know the credit pools you do
31:25for pre-approvals that don't close your rent your marketing your technology your processing your loa
31:30benefits payroll taxes all that type of stuff and so if the industry is running at 3 800 by the
31:38way the
31:38other number that goes into this is the unprofitable loan officers must be subsidized by the profitable loan
31:44officers within a branch and so typically you have a very suboptimal outcome and branch managers most
31:51often don't understand because they don't get the information they're doing the best they can
31:55with limited information which what is the profitability by loan officer because most companies
32:00just take the financials down to the branch level so you're really flying blind as a branch manager
32:05not realizing that like hey this one loan officer is costing you two three four five six thousand
32:12dollars a loan that needs to get subsidized by everybody else and they can't see that right so
32:17what do they do they're like man i'm not making money i gotta i gotta raise my margin up with
32:21realizing
32:22that if you fix that one loan officer and i'll call it up or out hey they got to get
32:26profitable or
32:27they got to go out the door that's what's costing you so much that you got to bake into margin
32:31on that
32:31like if i'm looking at this uh from a branch manager perspective i'm not and i'm a producing branch
32:38manager where does my where does my salary factor into these overarching costs so if you're the
32:47producing branch manager um the your salary is essentially just part of your earnings margin
32:54right if you're an originator in that branch your manager's salary is a sales expense yeah okay and it
33:03goes into this number right and so that's where and by the way i'm not against branch managers i'm
33:08against branch managers that maybe inadvertently or purposely wind up running very inefficient models
33:14that i mean i run into to loan originators within branches where their sales cost per funded loan once
33:21you add in the msa's the manager compensation all that type of stuff it's four and five thousand
33:25dollars a loan and and they're blaming their company and i'm like no it's not your i mean sure your
33:30company might be part of the problem i don't know what their margins are but it's really the
33:34infrastructure that you're in right there and people kind of like don't realize that i mean the
33:39basic example would be you see these msa's five grand ten grand a month and they do two or three
33:44loans
33:45out of it that crushes all of the loans you're pricing outside of that msa because it's an unprofitable
33:52msa from an expense standpoint if that's costing you three or four thousand dollars a loan for that msa
33:5610 grand on three loans you've got huge problems there and so when we start to convert our expenses
34:02to a cost per funded loan right so you're like all right my cost per funded loan excluding lo compensation
34:09is four thousand dollars okay well that's costing you a quarter in rate to cover it and so i think
34:16when
34:17you start to translate expenses to expenses per loan to what is the rate impact then you realize
34:23huh if i cut my my expenses from four grand to two thousand which is very doable like that's not
34:30like a wow i need amazing technology to do that that means simply put at the same rates you can
34:36a
34:37loan originator can make eighteen hundred and forty five dollars more per loan on average or you could
34:41give the borrower an eighth better in rate on average and so that's where it's really like expenses
34:46are the biggest drivers of what compensation do you make and what rates do you offer to the borrower
34:50so the key takeaway here for this one is that the the sales expense the non-commissioned sales expense
34:56is about a third of the overall expense and that's something that originators can have control of
35:01through what's their pull through what's their processing um how all of that stuff added up and so
35:07when you start to optimize that that's a big driver of it and i'll say that the benchmark for this
35:13what i
35:13coach our team on is you really want to be around two thousand dollars alone if you get that number
35:18to
35:18two thousand bucks like all the other problems disappear so now moving on to kpi number four
35:24okay this is the one that that is very interesting um that loan originators do not have control over
35:32but is that like the number one thing that i would be asking as a recruit and i'd want to
35:36see it verified
35:37which is hey what are what are your true corporate expenses per funded loan you can take the profit margin
35:42out that's fine you can you know like because in the corporate margins is essentially the cost
35:47plus profit margin and so i'm not against mortgage companies making money as i opened up this meeting
35:53up we made money last year and we're profitable in q1 i want to make money but if i the
35:57lower you can get
35:58the expense number the lower the corporate margin needs to be to make it your your goal profit margin
36:03how do we benchmark this one right so the nba average is fifty eight hundred dollars alone in non-sales
36:11expense that's what the number gets gets out to as it tells you do so the corporate expense is fifty
36:15eight hundred dollars by the way you can triangulate this because we know companies like uwm and penny
36:20mac are saying that they're earning about 130 basis points and essentially breaking even right on the
36:26wholesale side of things so you're saying all right well their expense per loan is about 130 basis points
36:30this really comes into play because we see time and again originators um will say well this company's
36:37corporate margin is only 50 basis points right well it's like if the corporate margin is 50 basis points
36:44and the biggest most efficient wholesalers need 100 to 130 basis points to make money i don't know
36:50about that so if your average loan amount is 400 000 50 basis points is 2 000 alone you can't
37:00i don't
37:00know anybody that can make money on 2 000 alone because the profit margin should really be about
37:041500 bucks alone so you're saying is you can run the entire company on 500 and so i think that's
37:10why
37:10there's so much distrust in the mortgage industry is because loan originators don't have the information
37:15to be able to make informed decisions then they listen to people saying i promise it's 50 basis
37:19points math would tell us you can go look up the public mortgage companies the true number is fifty
37:24eight hundred dollars is what a mortgage company needs to bring in or brought in in 2025 to cover their
37:28expenses we've been able to get it to three thousand dollars and i know other companies i know um
37:33elan for example put this up online recently i respect those guys i said hey the best we've gotten
37:40to is three thousand dollars and i reached out i was like hey we're right there and so i think
37:44from
37:44a benchmark perspective um the lowest that we're seeing corporate expenses get to is about three
37:51thousand dollars alone the industry average is around fifty eight hundred dollars and so the lower
37:56the corporate expense right the the lower the corporate margin needs to be in order to deliver those
38:02better rates to the borrower similar question to one i had previously where where do you see
38:06the the the fat coming in i mean what what is i guess there's there's the assumption that something
38:11is eliminated on the corporate side to reduce those expensive and so expenses so what is that i mean a
38:17fair assumption or is it just a more efficiently run corporate uh organization that yields a less
38:24expensive cost you know what i'm saying which this is where are we at here this is like the the
38:29asking um
38:30what's the recipe for coca-cola you know like this is where the magic is and so i'll share a
38:36couple of
38:36things on this that can that that i'm not a consultant to other mortgage companies i'm a
38:42consultant to loan originators i want to provide information for them i'm not really trying to help
38:45other mortgage companies really lower their expenses but but i'll share a couple of things
38:50what you just said is to have better expenses means you're skimping on things that you're not offering
38:55certain service levels right i understand that that's the assumption right like they got i fell
38:59into that trap for a long time and then i i got really into systems architecture and manufacturing
39:07theory into the mit systems architecture course got my certificate in that became a student student
39:12of deming and and what flipped for me was that the biggest driver of cost is productivity
39:18the biggest driver of cost is productivity so for example an originator uh an underwriter that does
39:2530 funded units a month cost like 500 bucks if you get that number from just 30 units to 40
39:32units
39:32right 10 more closed loans that's one loan every other business day that they work on
39:37uh the cost drops down to like 290 dollars and so once you start to like really understand that
39:43we're talking about going from 30 to 40 loans has like a 30 to 40 percent decrease in underwriting costs
39:49you go oh what would we do in order to get the underwriter to do that now
39:54i'm going to give away the the big secret everybody thinks that fulfillment's the big expense
40:00of our roughly three thousand dollar expenses it's only a thousand dollars to actually do the loan
40:05fully loaded underwriting through post-closing including qc is a thousand bucks that means two
40:11thirds of the expense of corporate has nothing to do with touching the loan it's running the business
40:16and so there's public mortgage companies you can go look up that have just their gna expense right
40:22their general and administrative is like 106 basis points alone it's over four thousand dollars alone
40:28in all the expenses for things for people that don't even touch the loan and so if you look at
40:34the corporate expense it's roughly one-third fulfillment two-thirds everything else and so even
40:40if you don't touch fulfillment and just say cool we're going to do average on that it's the big nut
40:45to
40:45crack is accounting and legal and compliance and hr and marketing and all these types of things that i think
40:50most companies kind of don't focus on because we're in the we're in the business of doing loans so we
40:55put all of our energy into doing the loans but then you got all these departments that wind up
41:00getting really fat and now what's exciting about ai is that ai enables cost compression without
41:07service degradation and so when you start to really look at hey workflows you got to figure out your
41:12workflows your data integrity and then automation on top of that using ai you can just collapse
41:17these expenses with service levels going going up from there so you know by way of example on this
41:24you know the first big aha moment for me was that we read we were able to in 23 reduce
41:31our accounting
41:31and finance expenses by 80 percent and dramatically increase our service level like whoa by the way we'd
41:39ignored accounting and finance for six years right you don't think about it like oh whatever it's just
41:43it's something you have to do then you realize you can really drop those costs even more recently
41:48over the last year we brought a lot of efficiency to closing post-closing and capital markets right
41:55so like really real automation that gave such a lift to all of those departments that they had much
42:02more capacity we were able to and this is the harsh reality like if you want to if you want
42:07to be able
42:08to deliver a three thousand dollar corporate cost per loan there's cost for it and i want to be
42:12i want to be clear about that right but i think if you don't do these things then you're not
42:17delivering
42:18the best rates of the borrowers and the best compensation to your originator so you have to say
42:21what what trade-off are you willing to deal with so we were able to um essentially let go our
42:28post-closing
42:29team and absorb those responsibilities into closing and secondary so and the way that we're doing this
42:36now is for every hundred thousand dollars saved we're sharing 18 percent back with the existing
42:41team so because of the automation we did over the last 12 months we gave a capacity lift per hundred
42:47thousand dollars saved we share that money back with the team so the people that were able to absorb
42:52that work by the way they're not working more hours we've just increased their productivity
42:56that's the win for all that you can you can create that they got an increase in their compensation
43:00while the overall cost per funded loan goes down and the service level goes up because of all the
43:06automation that you got within that yeah i think that we could do we could probably do an entire
43:10other session on some of the on just on best practices for conversations on how lo's should
43:16have these conversations because even in this slide right here in this example there's there's like
43:20two there's two lanes you're an lo at an existing lo at a company and then you kind of do
43:26your
43:26detective work and then you work with corporate and figure it out but uh if you're an lo looking to
43:32join you're you're being recruited how do you recommend lo's approach that conversation in the
43:38first place before they get hired on or is this an entire is this you know a topic for another
43:43uh session well if i were an originator and i was looking to move companies i would have that company
43:50put in writing everything that they were promising me about their margins their expenses and their
43:55numbers um and make that a legal document that they're held accountable to because unfortunately
44:01there's a lot of saying one thing and doing another thing and so i learned that lesson in my very
44:06my second
44:07job i uh i took a job that took a low salary and i was i was promised this big
44:13bonus at the end of
44:14two years if we hurt hit certain things did it on a handshake right was told all the things that
44:19i wanted
44:19to hear left new york moved to to florida the two-year mark came and i said great i'm ready
44:25for
44:25my bonus uh things have changed it was like ah ah and i learned at that moment because i was
44:33somebody
44:34that operated with integrity and i wanted to be the kind of person that did deals on handshakes
44:39well unfortunately i was doing a deal with somebody that did not have integrity and so from there i've
44:44said hey put it in writing it's really easy to say one thing and do another thing unless it's in
44:49writing
44:50and actually know an originator that did this uh and then wound up suing the company get a couple
44:54million dollars back because the things that they had committed to um in writing they didn't live
44:59to and that originator won on that okay when we bring this all together right when you start to
45:05look at hey the industry is running at about thirty eight hundred dollars alone in non-commissioned
45:11sales expense and the industry is running at fifty eight hundred dollars alone in corporate expense
45:15right those two numbers are costing you around eight thousand dollars nine thousand dollars alone
45:20in an optimized model with like a three thousand dollar corporate expense and a two thousand
45:26dollar sales expense there's a thirty nine hundred dollar cost gap on your average loan if each eighth
45:34is worth eighteen hundred and forty five dollars so like what does this mean to an originator what's
45:39the big takeaway that that originator that i showed in the beginning that was making 175 basis points
45:44they are able to do that because of this cost gap of almost four thousand dollars alone right and that's
45:50that's what it comes down to and so when when you start to add this up it gets very meaningful
45:56because
45:56you're talking about either a quarter better in rate to the borrower or you're talking about another
46:0250 to 75 basis points in compensation for selling the market rate and so when we talk about ai and
46:09these types
46:09of things i think it becomes very powerful to say it's not in the future it's today there are companies
46:16operating at these types of numbers and when you start to talk about that it's a huge differential
46:20when you're talking about on the average commission of thirty seven hundred bucks just an eighth in rate
46:27right to the equivalent expense of an eighth in rate is eighteen hundred dollars alone if you if you're able
46:33to give that back to the originator because your expenses are lower that's like a forty five percent increase in
46:39compensation for that originator so just being eighteen hundred dollars cheaper in expenses and
46:45non-commission expenses combined between sales and the company means you can sell the market rate and get
46:50like a forty five percent increase in compensation these numbers get very very real fast once you do it
46:56so to bring it all together in another way to make the point you know on that on an eight
47:01hundred thirty two
47:02thousand dollar loan um it gets really wild the six point three seven five percent rate was pricing in
47:08twenty three thousand dollars of revenue and that that means they got to cover the non-commission expenses
47:13of eighty three hundred the lo comp the corporate expenses of fifty seven hundred and make twelve hundred dollars
47:20in an optimized model you could be selling six percent charging 17 bips bringing in almost fifteen
47:26thousand of revenue cover all the expenses pay the loan officer the same amount of money
47:32and um have a profit of fifteen hundred dollars so like that's the different that difference that
47:37you're talking about is in if a loan officer is in a really optimized model both the company and sales
47:42they can sell you know a quarter better in rate make the same amount of compensation for it the
47:50company makes more profit for it the borrower gets a better rate that's the win for all in the
47:54market share lo's watching this or anybody in the audience watching this like what do you recommend
48:00for them as they're like what a series of first steps or their initial their big takeaway and then
48:06transition to a first step and then do you have like a from your experience what's a general like
48:11a time frame for them to be able to uh set up and be able to track these these kpis
48:17so i think the
48:18the first one that that originators can have the most amount of control over right even if they're
48:23an originator inside of a branch they don't have control of it the branch manager knows what their
48:27sales expenses are and so i'm telling you that it's achievable to do a two thousand dollar number
48:33when i say two thousand dollars i mean over the course of a year some months it might be three
48:37thousand dollars some months it might be fourteen hundred dollars because it's drift it's your fixed
48:40cost divided by your units and so you've got fluctuation in seasonality and what the funding is
48:45say hey in 2025 if we exclude commissions what was our sales expense per loan that's just
48:51all of your expenses divided by the number of loans that you've done the benchmark that you
48:56should be working towards is two thousand dollars that's where the magic number that in this market
49:00you just it unlocks you can you can win on rate every single time if you're at 2500 3000 4000
49:06then you want to dig into like well what's driving that number we've been able to get in 2025
49:12our all-in processing cost was about 425 dollars okay i think the industry is operating at more like
49:19900 to a thousand dollars third-party processing companies are charging like 1300 to 1500 dollars
49:25okay well there's like a thousand dollars you can pick up sometimes just in processing by being more
49:30efficient and that's really the difference between does a processor do 12 loans a month or do they do
49:3520 to 25 loans a month the average processor working in a really good system can do 20 to 25
49:41loans a
49:41month like that's very doable um so you start to understand that one then loas hey what's our
49:47loa expense we've been able to get processor and loas fully loaded over the course of a year to
49:53about 800 bucks alone i think we get that number to 500 through productivity gains well also how are
49:59they compensated i talked to a recruit a couple of weeks ago and it was it was an interesting
50:05conundrum the loan officers compensation was capped at x i think it was like 500 000 they were using
50:11company provided loas that were earning like 15 or 20 basis points that was deducted from the loan
50:17officers compensation okay fine hey i agree with that the loa's compensation was not capped so now
50:24on an 800 000 loan the loa is getting 1600 20 basis points times 800 000 that's deducted from the
50:32capped
50:32originators compensation of five thousand dollars so there's like a real just misalignment in that
50:38situation so you want to look at like hey what are we doing who's getting overrides that's one of the
50:43biggest drivers i see of inefficiencies is when you start to pay people in override support
50:48functionality the numbers can get really crazy and a misalignment between the originator the borrower
50:53and that support staff in it i'd want to know if i'm a loan officer inside of a branch inside
50:57of a
50:57company what percentage of the loan originators are unprofitable because the unprofitable loan
51:05officers need to be subsidized by the profitable loan officers which means the profitable loan officers have
51:09to have higher margins to cover the unprofitable loan officers james deitch has a great chart on this
51:15that that is true in my experience as well um he says that you think about it this way your
51:21middle 50
51:22of loan originators are break even for the company your top 25 he uses the example make a million dollars
51:30of profit your bottom 25 lose a million dollars in profit and so if you re if you were to
51:36get rid of all
51:37your unprofitable loan originators you can much improve the margins for your profitable loan
51:42originators and so so i think what happens in a lot of companies and branches is that the a lot
51:49of
51:49originators are overpaid right the unprofitable ones are are overpaid the really profitable loan
51:55originators tend to be underpaid because they're subsidizing those guys and so when you start to correct
52:01those things you get to a much more optimal solution and so if i'm a branch manager and it's a
52:06it's a
52:07tough one right and and it took me a year to really fix this within prince and mortgages like the
52:14the
52:14number one way to improve your profits or your compensation is to stop doing the things that
52:21are unprofitable which means you need to be intolerant of loan originators that are unprofitable
52:25how often is my last question for you how often should you should or do you recommend uh branch managers
52:31or lo's to be tracking or uh re-familiarizing themselves with these kpis is this like a
52:37monthly practice is a quarterly practices uh i would assume not a yearly review what's your what's
52:42the cadence yeah i think there's a lot of variability month to month because you know so for example in
52:47that first originator uh pnl that i showed where the expenses were two thousand dollars that was on 16
52:52units that originator had funded 10 units that month the expenses would have been three thousand dollars
52:58alone and so once people really understand fixed versus variable expenses you're finding your optimal
53:04solution of hey what are my expenses relative to my average volume so to answer you i think you should
53:09be looking at it every day but really looking at it over a 90-day cycle because you've got sort
53:14of
53:14a longer run rate to say okay one month i did 20 loans one month i did 12 loans one
53:19month i did 15
53:19loans it averages out how did i do over this 90-day cycle and then you want to and and
53:24to make the
53:25changes i'd say this is very realistic within six months and so the cleanest data that i've got on
53:33it is that you know we're able to bring originators in within six months they're earning 50 basis points
53:40more and selling rates that are an eighth to a quarter better than they were at their previous
53:44one that's my core customer right the core customer is typically the top performing you know
53:50one of the top performing loan originators who does not own the pnl um and you can say there's
53:55just there's a huge amount of opportunity for that originator okay well look man i i uh i really
54:00appreciate you taking the time to uh i would say teach us but teach me and uh share this with
54:06with
54:06our audience and i i think it's fantastic i think this will help a lot of people and i just
54:11i can't uh
54:12thank you enough for doing it so it's great i appreciate housing wire and what you're doing and really just
54:16educating people because i think the note the more they know the better they can make decisions and
54:20figure out how to outperform
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