Dennis Hardiman is troubled by a growing trend in mortgage lending. It’s not illegal, mostly not even a gray area. Instead, he said, “it’s a short-term win that we quietly whitewash as innovation, while long-term consequences stack up.”

Across America, mortgage lenders are hiring real estate agents as W2 employees & paying them to “help produce a loan.” Some lenders pair a consumer direct LO making 25 bps w/ the agent or team, while others onboard an agent w/ their network of referral partner LOs as a vertical recruiting play. Some shops create a P&L system for the agent/agent team as part of a branch with traditional LOs.

“Panels celebrate it, trade magazines call it creative,” said Hardiman, CEO of Embrace Home Loans. “But here’s the truth: It’s compensation for referrals, dressed up, rationalized & repeated. It drives near-term volume & revenue, but risks long-term credibility & inevitable regulatory intervention.”

Mark Johnson, a real estate brokerage consultant/coach who’s worked on dual licensing structures, said lenders usually target the middle of the pack 🐺 agents. The top agents have too much going on, the lesser agents don’t bring any referral juice. The sweet spot 🍭 is an agent who does few deals a month but wants to snag an extra 50 bps per deal as an LO.

“The agent is more of a facilitator who makes the initial introduction, provides basic contact information from the borrower & passes it off to a lead LO who's going to take the file to the finish line…it’s eat what you kill,” Johnson said. 

AnnieMac is among the lenders that hire real estate agents as W2s. CEO Joe Pannebianco said the program is limited by design. AnnieMac pitches producing real estate agents who can pass the MLO licensing exam. It’s not a shell game, & most agents say they can’t/won’t do it. 

“That’s why we have so very few of them,” he said. “You have to be very particular & follow up w/ them monthly. We don’t love it because let’s assume they’re not doing their job as a loan officer, then you have to terminate, which means you also just lost a referral partner.”

It does, however, present a great opportunity to showcase the platform 💻 & build a relationship.

“What we try to show them is: Would you rather do an extra 12 real estate deals a year or go through the process of being an originating loan officer?” Pannebianco said. 

PRMG's Kevin Peranio said his shop requires MLO licensing. "It's not the sort of thing where [we say] ‘We have no idea who you are, thanks for answering our cold call, come make some money.’ These are existing relationships that they already have with PRMG & both sides want to cement it further."

On the complaints dual-licensing is a dressed-up kickback, Peranio disagreed. "If someone wants to do the so-called 'kickback' game, they're going down the MSA route, which we're not a fan of. We think that is non-compliant. This is a more compliant manner to cement a Realtor & originator relationship."

Some shops view it as a way to recruit LOs. They’ll approach an agent in a new territory & pitch them on joining the company alongside their LO referral partners.

Pablo Martinez of Equity Smart Home Loans told NMP earlier this year that his dual-licensed agents averaged 3-4 loans per month. "They're making double commission, so they don't have to refer out their deals," he said.

The Mortgage Scoop interviewed 8 sources for this story, all of whom insisted compliance is taken seriously. Some companies, however, don’t require agents to get MLO licenses and operate in murkier waters, they added.  

Some version of dual licensing could scale up. Rocket shut down Rocket Pro Originate in June ‘24. But they just acquired Redfin & its small army of salaried agents. Could they roll out dedicated teams of local Redfin agents w/ mortgage bankers, as some expect?

For now, no lender is doing it at scale. 

“The biggest hurdle we discovered wasn’t necessarily the compliance angle but the fact that top producing Realtors had no interest in also being LOs,” one source said. “The common feedback I got from real estate brokers was, ‘I have no interest in doing loans. That’s why I partner with you guys.’ The Realtors who were the most interested in the program were the ones who couldn’t sell & had the time to learn because they weren’t very busy to begin with.”

We just had the biggest 3-day lock period in a full year, millions are either in the $$$ for a refi or purchase mortgage, & there’s growing belief that lower rates are sustainable. But how many lenders will be able to handle the surge in volume? Will we see a repeat of 2020 when they drank from the firehouse?

“October will be an operations nightmare for a lot of IMBs 🤣,” one top LO said.

Industry pros who spoke to The Scoop agreed that the biggest lenders have plenty of capacity. Expectations were a bit more divided for small- & mid-sized lenders. 

“We’ve been in a terrible market for almost 4 full years,” said one IMB exec. “They are staffed to support what volume has been with maybe an extra 10-15% in excess capacity.” Many lenders haven’t hung onto extra ops people & won’t be able to scale up quickly enough to capture the opportunity, he said.

Another exec said there’s a lot of slack left at lenders above $1B. “Most lenders are sitting at 60% capacity,” he said. “That was part of the issue w/ profitability. Most lenders can do 120% capacity for 60 days before breaking.” He added that most have near-shore or off-shore relationships & staff they can bring back to the office.

An M&A consultant agreed that even small- and mid-sized shops are ready. “I think everyone is overstaffed based on the promise of falling rates & have been forever,” he said. “The incremental cost of being overstaffed in processing/underwriting isn't a large percentage of the total budget. Plus, w/ the really small guys, I commonly see FT people in roles (processing, funding, QC, post closing) where they end up at 1/3 utilization.”

An LO at a $10B a year shop guesstimated that 70-80% of lenders will be ready. “Any refi I locked a rate on in the last few weeks is somewhere between clear 2 close & submitted to underwriting already. If rates drop more than I expect & we see a mini refi wave, I could see us needing to do some 60-day rate locks to absorb longer turn times.”

For purchase mortgages, bottlenecks might come from other industries. “Many (not all) title companies are notorious for being understaffed when volume heats up & therefore title is delayed sometimes until very close to the projected closing date,” Bobby Nicely of Alcova Mortgage wrote.

Modern LOs have the tools they need to solve just about any sales problem. Financial fitness apps, CRMs with all the toppings, Precog-like lead gen, AI, etc. But adoption is poor, which is a massive cash drain for the lender.

​​”If lenders went through a usage test of all the tech & toys 🪀 they've got, what % of the company is even partaking in it at a good pace, not just dabbling?” said one regional manager. “I bet it’s really low.”

It’s not that LOs are Luddites 👵 . It’s that few lenders bother giving them a proper roadmap for using their tools to grow.

“There are old-school high-producers that have all these relationships & they know they need to expand now. But they look at the tools and are like, 'We wouldn't even know how to use this shit.'" 

Utilizing all these toys together needs to be seamless. They have to all talk with Optimal Blue & Encompass, Total Expert (or whatever they use), he said. “Your AI needs to be overseeing all of that. Unless it's done for [them], these LOs are not going to get it done."

One mortgage tech vendor told The Scoop that this dynamic presents a big opportunity for smaller, more agile firms 🤼 .  

Small companies building enterprise solutions for lenders can change the way they do business in 6 months & save them huge $$$, he said. Some of the bigger players may need to shift to a-la-carte or face stiffer competition. More on this in a future edition…

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