Brokerages and financial institutions that play a role in the mortgage origination process always strive to increase efficiency. That involves enabling underwriters and loan officers to improve processes by giving them access to loan origination key performance indicators (or KPIs, in short). That said, mortgage lending KPIs are a bit different than other mortgage business trackers. Let’s look at what they are, how to calculate them, and how they can unlock growth in your business.
What Is a Mortgage Lending KPI?
A mortgage lending KPI is a measure of the effectiveness and cogency of your loan process through the sales, application, underwriting, closing, and post-closing stages. Mortgage lending KPIs are important because they provide exclusive insights into how efficiently a lending team is performing within loan lifecycles.
Metrics: It’s More Than Improving Speed and Performance
Only mortgage lending KPIs can provide the specific insights and benchmarks needed to improve a loan officer's efficiency. They also help teams to make better decisions about resolving bottlenecks, structuring their team workflows, and making every loan that's originated more profitable. The improved experience that comes from improved speed and performance within the origination process leaves a sweeter taste in the mouths of clients. That means higher rates of customer retention and referrals.
The bottom line is that tracking KPIs is a surefire way to boost loan processing profitability. That might leave you wondering which mortgage KPIs your firm should be focusing on. Next, dive into the 12 mortgage lending KPIs that demand attention.
Mortgage KPIs That Look at Operational Efficiency
Is the origination process at your firm clunky? Many firms in the mortgage industry are stuck in slow cycles that leave clients anxious and angry. Use these three metrics to see where bottlenecks, inefficiencies, and frustrations are dragging your process down. If you can improve your level of customer service, that’ll have a downstream impact when it comes to referrals or when past clients refinance.
Pull-Through Rate: The 30,000-Foot View of Your Mortgage Operations
How is your pull-through rate looking? A mortgage pull through rate is one of the most important metrics for how to check loan officer production rates because it can reveal if your approach to lead nurturing needs tweaking.
To calculate a mortgage pull through rate, start by dividing your total number of funded loans by the total number of applications. You'll then multiply that number by 100. Low mortgage pull through rates hurt mortgage lenders because every applicant that "drops off" costs you lost time and money spent on capturing leads. Three factors that can increase mortgage pull through rates are better lead generation, better client education, and improved client-lender communication.
Average Cycle Time: Your Operation’s Overall Churn Rate
In the lending industry, you don't make more when you spend more time on originating a loan. That means that you actually lose money by default for each extra day added to a loan cycle. Do you know what your operation's overall churn rate looks like? This important metric can help you to discover how much you're actually making on each loan once "time spent" is factored in.
Mortgage processors track average cycle time differently. However, the most common method involves starting from the day a file was opened to when the borrower receives funds.
Application Approval Rate: Assess Your Lead Origination Efficiency
There could be a problem with your lead-generation technique if you have a low application approval rate. This problem can't be fixed at the point in the pipeline where it's detected. It's actually important to get the data in your hands that shows you where the disconnect exists between the leads you're drawing in versus lead viability. Good leads draw in applicants who are ready to be approved.
A high rate of rejected applications hurts your bottom line in a number of ways. The obvious way is that you're devoting time and attention to applications that aren't going to yield anything. You're also doing clients a disservice by drawing them into your funnel before disappointing them. While the factors that lead to application rejections aren't always in your hands, you can rest assured that the negative online reviews will have your name attached to them.
KPIs That Look at Conversion Rates
How many leads make it through the application process to become actual borrowers? While having loads of leads may feel satisfying, it's important to remember that only approved applications keep the lights on.
Abandoned Loan Rate
An abandoned loan rate refers to the percentage of mortgage applications that are either withdrawn or rejected after submission in relation to your total number of loan applications during a specific period. Factors that increase your loan abandonment rate include lack of transparency during the approval process, disagreements over loan terms, inefficiencies within the application process, missing information, miscommunication, and poor underwriting training. Determining your loan abandonment rate can be a starting point for vetting every checkpoint during the closing process to see why clients don't complete their loans.
Incomplete Application Rate
Why aren't clients finishing their applications? Here are some potential causes:
- Your online application process might be confusing or frustrating, or it’s not clear what is expected of the client during document gathering.
- Your online application process makes it difficult to pause, save, and return to work.
- Your application contains excessive information requests that fatigue clients.
- You're not providing support throughout the application process.
There's also the possibility that the problem starts long before prospects have applications in their hands. This KPI can show you if you're targeting prospects in the correct stages. More nurturing may be needed in your pipeline during the pre-application phase in order to boost completion rates.
Fallout Rate
Fallout rate KPIs for mortgage originators are important because they reveal the number of rate-locked applications that don’t close. These are the prospects you've invested the most into by the time they drop off. This two-pronged KPI provides loan officers with insights into failings within their rate-lock strategies. It can also provide insights into where you're falling short with finishing out loans overall.
Profitability KPIs
It's important to spot the bottlenecks preventing your leveraging capabilities. The following KPIs for mortgage originators make it possible to see where profits are being lost.
Cost by Unit Originated: Are Your Closed Mortgages Profitable?
This metric looks at your total business expenses divided by the number of loans funded within the same period. Knowing your cost per unit on loans allows you to measure the efficiency of your operations. Many firms get killed by excessive overhead expenses that chip away at the profit per closing. This KPI actually works in conjunction with other mortgage KPIs to help you adjust spending per closing to stay in line with expected performance during any given period.
Average Mortgage Loan Value: Second Look at Profitability
Here's another interesting profitability angle to consider when selecting KPIs. In addition to loan volume, it's important to look at average loan values. This information can help you to rethink your lead generation if you're only pulling in clients seeking lower-value loans. While high-value loans do often require extra processing and underwriting, those costs and commitments more than pay loan officers back because they're creating much larger commissions. In fact, one high-value loan can cover what it would take to make with two to three small loans.
Profit by Loan: The Final Piece of the Profitability Puzzle
The KPI for profit per loan is what it all comes down to regardless of how many loans you're closing, the size of the loans you're closing, and how quickly you're closing loans. In fact, every other metric serves this metric. How much are you actually making on each loan once you factor in all of the costs of doing business?
The way to calculate profit per loan is to subtract your total business expense from your total business revenue before dividing the number you get by the number of loans funded in a specific period. Some factors that can eat into profit per loan include:
- Low average loan values.
- Low loan volume.
- Slow loan processing times that reduce loan churn.
- High overhead costs.
- A failure to automate some processes for cost-saving benefits.
- Overspending on features that aren't profitable.
- Failing to properly plan and structure your marketing efforts.
- Not taking advantage of cross-selling opportunities for growth and retention.
While many loan officers like to boast about loan volume, only using profit per loan to measure loan officer production numbers actually reveals the health of a lending operation. All KPIs should work together toward the goal of boosting loan volume, closing bigger loans, and reducing excess costs associated with all points of a loan's lifecycle.
Final Thoughts: You Can't Know the Health of Your Lending Operation Without KPIs
Loan officers shouldn't be intimidated by KPIs. Mortgage lending KPIs aren't there to tell where you're failing. They're there to tell you where you can make improvements to boost loan officer production numbers for better profitability.