“FIXING” FIXED COSTS IN A DOWNTURN Six Considerations for Mortgage Bankers By Kristin Golab Plante Moran, ICBC Associate Member As many economists know, in the long run, all costs are variable. With interest rates having jumped into the 7% range and indications from central bankers that they could go higher before they come down, independent mortgage bankers (IMBs) and financial institutions that rely on mortgages for a significant part of their income need to find ways to cut costs in order to manage the slowdown. Many executives skip over certain “fixed” costs on the assumption that they can’t be lowered quickly enough to have an impact on current financials. Often, that’s not the case. Expenses like salaries, benefits, occupancy, and technology all have components that can be adapted to allow an organization more flexibility in the current economic climate. If your organization is struggling to manage costs amid rising interest rates and an economic slowdown, here are six considerations to help you weather uncertainty. 1. PAY STRUCTURES AND BENEFITS CAN BE MODIFIED RELATIVELY QUICKLY Undoubtedly, IMBs and mortgage operations have already been reviewing compensation and benefits packages. At its peak, the market may have demanded that employers seeking to attract or retain top talent come up with creative pay packages that might include significant amounts of guaranteed salary or upfront/ retention bonuses. As mortgage volume is down significantly, both headcounts and compensation terms can be adjusted to take into account current market conditions so that a larger part of the pay obligation to the employee is contingent upon actual loan production. In addition, with respect to benefit programs, it might make sense to adopt a nonvesting flexible time-off policy that allows employees to take whatever leave they need without accruing specific limited amounts as they work. These policies have to be monitored more closely for potential abuse, but they allow employers to get through the year-end without having to book an expense and an accrued liability. They also provide the advantage of not having to cash out the unused accrued leave of employees who leave the institution for another position. 2. PERFORMANCE MATTERS Whether it’s a review on an individual-byindividual basis or a broader look at which offices may be underperforming, IMBs and financial institutions that work in the mortgage sector can’t afford to assume they’ll be able to carry all of their employees through an economic slowdown. Organizations should look for low-performing loan production offices that can be eliminated completely to reduce property overhead as well as salary costs. If additional belt-tightening is still needed after the underperforming locations are shut down, managers will need to initiate the uncomfortable process of identifying individuals who aren’t making the numbers necessary to keep the business moving forward. 22 | INDEPENDENT REPORT
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