Meet John. He’ll originate 100 units worth $40M this year. Most lenders are willing to throw up to a $200K signing bonus 💰 at him up, but he’s pretty happy where he’s at. That is until a big player turns his head w/ a $500K signing bonus & a 3-year retention requirement.

The big retail lender tells John that the corporate margin is only 65 bps, so it’s a no-brainer for John. But a few months later, John discovers that the corporate margin is actually 200 bps. Turns out the lender got pretty creative w/ the definition of corporate margin — some fees don't count as margin & they'll move some of it around & call it 'secondary revenue,' for example. 

Regardless, to be competitive, John has to pick the “company-generated lead” bucket & cut his comp to 50 bps.

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“That signing bonus becomes the kiss of death,” Princeton Mortgage’s Rich Weidel wrote in a piece detailing the bonus risk. “Nothing in life is free.”

Weidel laid out the math behind the decision, for both John & the anonymous lender. 

A typical mortgage company needs 100-150 bps of corporate margin to survive. On a $300K loan, 100 bps is $3,000, at 150 bps it's $4,500. Per MBA, the total sales expense is $6K to $8K a loan, meaning everything else costs between $4K & $6K per loan. If corporate is paying the LO $500K & still wants to make 100-150 bps, they either have to take a fat loss on production or they’ll need to move up the corporate margin. 

“That $500K does something to your brain,” Weidel wrote. “It makes you want to believe. When they tell you the company only takes 60 basis points, you don’t do the math, because you’ve already been paid. And when the pricing seems off 60 days later, you don’t call them on it. Why? Because you’re locked in for 3 years. When they start adding fees and margin that weren’t in the original pitch, you swallow it, because what choice do you have? The signing bonus is the price of your silence.”

But if the signing bonuses are such a bad deal both ways, why do companies keep writing the checks? Weidel argues that execs are likely measured on just one thing: production growth. 

“Whether those originators are still with the company in two years? That’s a different quarter’s problem. Whether the company makes money on them? That’s finance’s problem. Whether the entire model is sustainable? That’s the CEO’s problem, & by the time it becomes obvious that it’s not, the person who made the deal has probably moved on to their 4th job in 3 years.”

It’s a really interesting piece w/ loads more details, & I highly recommend you check it out. For more on the recruiting wars, make sure to read The Scoop’s piece from Sept. 5. It includes this quote: "Loan officers are like rappers. They are bad with their own money & many don't understand how the industry works.”

Minority owners of the Phoenix Suns say Mat Ishbia has "decimated the company's finances," hid key transactions he was allegedly on both sides of, & pushed the Suns into bad deals (including the construction of a $20M clubhouse called the "Ra Ra Room"). The lawsuit says Ishbia loaned money to the team at above-market interest rates (no Refi 90 deals, I guess?) & sold the arena’s naming rights to UWM w/o sharing terms. Ishbia’s camp says the lawsuit is BS.

If you’re like me, your entire personality over the last week has become recitation of facts about the Revolutionary War 👑 from the new Ken Burns docu 🥁 series. The conflict is about real estate as much as anything, so it got me wondering how mortgages 🏛 worked back then.

In Colonial times, the borrower would sign over title to the lender w/ what's called a defeasance clause. Basically, if the borrower paid the debt in full by a specific date, the transfer would become void & the title would revert back to the borrower.

However, forfeitures were hardcore. If a borrower missed a payment by even a single day, they forfeited property to the lender regardless of how much principal had already been paid. In the 18th century, courts in the colonies & England gradually recognized equity of redemption, providing more borrower rights.

Most mortgage terms were 1-to-5 years, w/ big down payments. Lenders were typically wealthy individuals/merchants & land banks (PA & MA had them). In fact, the U.S. only had 3 banks in 1789.

Though the purported “hack” on ICE’s MSP system was fake, there were other hacking attempts of mortgage vendors that sources said had the hallmarks of the successful SitusAMC cyber attack.