LO commissions take a hit as refi volume slumps

Loan officers’ wallets slightly deflated in the second quarter, with commissions earned per LO decreasing by 6% year-over-year, according to LBA Ware’s quarterly loan compensation report. Loan volume per LO also took a dive of 4%.

The reason? Lenders have more LOs these days.

“That meant that LOs had to share the loans a little bit,” said Lori Brewer, founder and CEO of LBA Ware.

Another reason could be that the refi wave may be showing signs of drying up, though the jury is still out on that given the recent decline of the 10-year Treasury. (Mortgage rates have fallen in recent weeks due to COVID-19 related fears, spurring an increase in refi activity.)

“There’s still plenty of room for refinances and rates are still low… but if you look at the numbers and the people that are still eligible to refinance, there is still a huge number that could benefit from refinancing,” Brewer said.

The analytics vendor found that LOs funded an average of $900,000 in refinance volume per month during the second quarter, a 36% drop year-over-year. LOs received an average of 91.68 basis points per refi, a notable decrease of 6.94% from 98.52 bps during the same quarter last year, LBA Ware found.

If refi activity continues to slow down, lenders in the near term will have to address their increased staffing margins.

Overall, LOs saw a 1.76% decrease in per-loan commissions to 101.3 bps in Q2 2021 from 103.1 bps in Q2 2020. LOs in the dataset analyzed by LBA Ware received an average of $2,876 in commissions per loan. That’s roughly 35% of the $8,243 it costs to originate a retail loan, according to 2020 data from the Mortgage Bankers Association.

LBA Ware’s data shows that loan processor staffing grew by a whopping 49% year-to-date, though they handled 27% fewer loans per month in the second quarter of 2021. This decrease drove the quarterly bonus compensation for processors down by 26% to $1,999 earned per month in Q2 2021, from $2,684 a year ago.

Brewer noted that lenders added processing manpower at “almost 10 times the rate they added LOs in Q2” and cautioned that “it remains to be seen if that level of operational staffing will be sustainable over the long term.”

Meanwhile, purchase volume grew 49% year-over-year, with individual LOs funding an average of $1.52 million of purchase loans per month, the analytics vendor said.

Brewer added that LOs continue to benefit from a strong purchase market “buoyed by low rates, flex-work opportunities” and millennials moving out of mom and dad’s house.

“Millennials and this post-pandemic attitude of the amount of people moving and changing jobs, usually leads to making a change in the house that you live in. I think it will be interesting,” she said.

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