These challenges have led to clawback attempts and legal disputes, particularly when an LO departs for a competitor. The issue extends beyond financial strain—tensions are rising between top-producing LOs and their lower-performing colleagues, as well as with management.

"Lenders operate on a margin, and when they have to support low performers (50% of LOs are low performers), their costs rise," said Pat Sherlock, president of QFS Sales Solutions, which offers support to originations teams. "That makes their loans less competitive, which top producers do not like. Holding on to low performers hurts both lenders and high-performing LOs."

Branch managers must own their outcomes

Branch managers, who are often responsible for both hiring and profitability, must take accountability for both successes and failures, said Casey Cunningham, CEO of Xinnix, a business development and training firm for the mortgage industry.

"If you own the performance of your branch, you really own it," Cunningham said. "You want to take credit for the top guys, but you've also got to take credit for the bad guys."

She challenges managers to assess their contributions to their team's success: "What are you doing specifically to bring value?"

A lack of energy, inspiration, and motivation from leadership can drive LOs to leave—often before the company recoups its hiring costs. 

Most in the industry are paid some percentage of commissions based on the loan margin; when LOs switch firms, many are paid sign-on bonuses as well.

The Mortgage Bankers Association's third-quarter report found that independent mortgage bankers' total loan production expenses, including commissions and compensation, dropped slightly to 323 basis points ($10,716 per loan) from 330 basis points ($10,806 per loan) in the prior quarter. However, this remains significantly above the historical average of $7,573 per loan since 2008.

Understanding the True Cost of Hiring

Many managers fail to grasp the full cost of hiring. The breakeven point varies based on market conditions and an LO's projected production, making forecasting inherently risky.

"We are coaching leaders to identify their breakeven points and evaluate if those costs are tolerable," Cunningham said. Some firms are reconsidering signing bonuses altogether due to concerns about sustainability. 

Many executives now realize that signing bonuses often go to the wrong LOs—those who keep jumping companies rather than those worth retaining long-term, she said. 

Hiring tolerance varies among lenders—some expect to break even in six months, others within a year or more. However, Cunningham notes that most lenders don't even know what that timeline should be. In one extreme case, 90% of a lender's new hires didn't make it to their first anniversary.

"Do you want more long-term production? Because you can get initial production in recruiting, it's the retention that's going to create the profitability long term," she said.

Managing hiring expenses

"As far as bringing on a loan officer, the expense categories are almost identical for an experienced loan officer compared to a brand-new loan officer, with the exception of salary," said Mike Dulla, the president of United Home Loans.

Most companies are likely paying that inexperienced LO, at least at first, a salary (it is an unsettled legal issue on whether minimum wage requirements apply to mortgage sales staff).

There's a high dropout rate for those brand new to the field—only 50% to 60% of new hires may succeed. 

The costs of bringing on a new LO extend beyond compensation. Beyond salaries, firms must also invest in licensing and training (around $1,000 per LO) equipment and time and resources from experienced team members to onboard new hires.

Accountability as the key to retention

Dulla, who has led United Home Loans for 23 years, believes that "management and accountability are the two most important factors in hiring loan officers." Regular communication and tracking sales activities ensure both sides are aligned.

His company follows an approach similar to The Core Training's "greatness tracker," where LOs must report their sales efforts and participate in performance meetings. "If they bring in solid production without a large signing bonus, we expect to break even in 12 to 18 months—but usually I would say at least two years" for experienced LOs he said.

For new LOs, the breakeven timeline is even longer due to licensing and training requirements. Recognizing the difficulty of the mortgage industry, United Home Loans meets monthly with inexperienced hires to provide support and guidance.

"Those meetings help us manage underperformers and reward high achievers. I don't want to cut someone's salary or let them go without multiple warnings," Dulla explained.

United Home Loans paused hiring inexperienced loan officers for a 24-month period because of the industry's malaise. But being able to bring these younger people on board again is not just good for his company, it's also good for the future of the industry, he said.

The need for transparency in hiring costs

Brian Boyles, national sales manager for Middleton Advisor Group, emphasizes the importance of transparency in hiring and retention.

"Every lender calculates expenses differently, affecting their revenue targets per LO," he said. Understanding these financial dynamics is crucial for both lenders and loan officers.

Lenders face four key acquisition costs when recruiting: employee carrying costs (benefits, taxes, etc.) sales and marketing expenses, operational fulfillment (loan manufacturing costs) and commissions

Traditionally, signing bonuses under six figures require a 12-month commitment, while larger bonuses extend to 24-36 months. Boyles suggests an alternative: Instead of tying bonuses strictly to time, they could be structured around production milestones, allowing LOs to 'earn out' their bonus faster.

Restructuring compensation for long-term success

Performance-based bonuses—where LOs receive payouts for hitting production milestones—could alleviate financial strain on lenders while making LOs feel less restricted.  The parties are then aligned from "a partnership perspective," Boyles said.

The mortgage industry's 30%-35% attrition rate remains a significant challenge. To combat this, Boyles advocates for a shift in mindset: Loan officers should evaluate companies for more than just financial incentives. Likewise, lenders must recognize the value LOs bring beyond immediate production.

A more collaborative approach to hiring and retention could reduce legal disputes and unnecessary expenses. Lenders and LOs alike can benefit by restructuring existing agreements in ways that create mutual success, rather than continuing a cycle of costly turnover and litigation.