Heejin and I have been offered seven-figure “signing bonuses” (in exchange for aligning with a new mortgage bank) on numerous occasions by large mortgage banks trying to lure JVM under their umbrellas.
We always say “no thank you” without hesitation because we know for certain that there are no free lunches in the mortgage world.
In other words, every mortgage bank that pays signing bonuses has to recoup them somehow – and that “somehow” always translates to higher rates and fees for their borrowers.
Why Lenders Offer Signing Bonuses/Risks
Mortgage banks obviously offer signing bonuses in an effort to grow their volume with the hope of retaining the loan officers or branches for many years.
Mortgage banks also sometimes just want the prestige of having a top producing shop or loan officer under their umbrella.
But the risk is equally obvious – those loan officers or branches can (and often do) jump ship before the mortgage banks can come close to recouping the signing bonuses.
We know of some loan officers who have made as much from signing bonuses over the years as they have from closing loans, begging the question – why do mortgage banks take the risk of paying bonuses to “professional signing-bonus-getters?” 😊
Several years ago, we saw a large mortgage bank pay high six-figure bonuses to a large number of loan officers only to see them all leave within a year, and many have since moved on to new mortgage banks again.
The other risk has to do with paying bonuses to loan officers or branches that do mostly refi business; if rates go up, the volume of loans from those loan officers/branches dries up overnight.
Signing Bonuses In Real Estate
Real estate brokerages of course pay signing bonuses too. But, they are less risky (at least from our limited perspective) because they don’t always translate to higher fees for consumers in the same way that they do in the mortgage world.
Why Signing Bonuses Matter – Because Rates Matter!
Signing bonuses matter because rates matter more than ever nowadays.
Even though rates are extremely low again, consumers remain very rate-conscious because it is so much easier to compare rates online.
I am blogging about signing bonuses today because we have seen them proliferate recently with the recent rate-drops.
Mortgage banks are more easily able to “bury” the extra cost of signing bonuses into their overall rates when rates are dropping.
And mortgage banks hope beyond hope that their “signing-bonus-getters” will stick around long enough to make the signing bonuses worth the cost.
Unfortunately, as we have seen time and again, this strategy rarely works.
