With mortgage interest rates at their highest levels in recent years, the mortgage banking industry is facing a period of hesitancy among prospective borrowers and existing clients alike. This is a time when lenders and brokers must do everything in their power to ensure that the pace of mortgage applications does not slow down too much, but they also need to watch their mortgage pull-through rates.
What is the mortgage pull-through rate?
In essence, pull-through rates are calculated by dividing the number of pre-approved loan packages by the number of deals that made it to closing. The transactions that got funded will give you the closing rate; the ones that had a scheduled date and time for signing count towards the pull-through rate even if the applicants exercise their right to recission.
This industry metric is sometimes referred to as the closing rate, but it is more accurate to describe it as pull-through. That’s because getting to the closing table is what really matters. In other words, the pull-through rate does not take into account issues that prevent wire transfers from going out because of a matters related to title and escrow.
When a loan package reaches the stage of the mortgage process known as "clear to close," that deal has pulled through the origination, underwriting, and processing pipelines. If for some reason this deal does not fund because the applicant goes through an emergency that prevents her from going to the closing, it will not count towards the closing rate, but it will be a positive number when calculating the pull-through rate.
Why do pull-through rates matter for lenders?
In short: profitability. Imagine you have two teams with the same overhead, but one closes 10% more mortgages. Over a long enough period of times, one of those teams is easily more profitable than the other.
For retail lenders, solid pull-through rates are vital to their bottom lines. This is a metric that lets them know they are not spinning their wheels or leaving money on the table. For wholesale lenders, closing rates are more important than pull-through numbers because they do not operate origination departments.
Typical pull-through rate numbers and setting goals
The average pull-through rate in the American mortgage market in 2021 was 75%. 2021 was a relatively good year for homebuyers, originators, and lenders alike.
The flip side is that 75% pull-through means that the mortgage industry fails to convert one in every four loan packages entering the pipeline. Now multiply the cost of processing a mortgage by the total number of applications in a year, and you get an idea of the incentive to improve mortgage pull-through rates.
That said, you can't reasonably expect a 100% pull-through rate whether you operate a boutique brokerage or a large retail bank complete with outside account executives. Some loans don’t make it through the origination process for reasons outside a mortgage lender’s control.
You can take the average pull-through rate of 75% as an industry standard to improve upon. For a large retail bank that takes walk-in loan applications at its branches, closing three out of four borrower applications is pretty good. But this is not the same for a small brokerage that only originates a handful of loans each month.
How to analyze your loan application pipeline
The first step in evaluating your pull-through rate is to establish your pipeline management parameters. It is always better to run a pipeline that starts at the borrower’s approval stage and ends with a closing date. You don't want to count pre-approvals or any other. Track the loan process from start to actual end.
With regard to the second to last "clear to close" stage, you want to set clear and firm policies on the loan packages that should be flagged as such. It is better to let underwriters design the CTC checklist and have a manager sign off on each file that makes it to this stage.
Note that when it comes to refinance applications, some lenders like to have a separate pipeline and pull-through analysis. That’s because refinance situations are a bit more streamlined and naturally have higher pull-through rates. Refinances can therefore skew your metrics.
Pipeline monitoring frequency
Checking your pull-through rate doesn’t have to happen in real-time. It’s unlikely that in a day your % of closes will drastically drop. Unless you operate a large operation, it’s perfectly fine to check your pull-through on a weekly or bi-weekly basis.
Getting great metrics from your loan origination software
If the functionality of your loan origination system (LOS) does not allow you to quickly calculate pull-through rates, you may want to consider another solution. Most LOS platforms feature automatic calculation of pull-through rates that can viewed at a glance or gleaned from reports.
Metrics, analytics, and insights are what you should be demanding from your LOS these days. Fancy dashboards and flashy customer relationship management (CRM) interfaces will not advance your business as much as the right set of metrics and insights.
Seven tactics to optimize borrower mortgage pull-through rates
Here are six ideas that can help you get more loans flowing through the pipeline and towards the closing stage:
Work closely with your underwriters
Many loan origination departments operate like high-pressure boiler rooms with an emphasis on sales volumes. When this is the case, you end up with low pull-through rates. If you allow your underwriters to provide input with regard to your workflow, chances are that more of your files will make it to closing.
Employ automation and AI-powered software
As previously mentioned, the loan origination system (LOS) you choose can make a significant difference in your mortgage processing operations. Advanced platforms that feature AI functionality will give smarter insights and recommendations to improve pull-through rates. With process automation, your employees can spend more time on analytical tasks instead of rushing through repetitive processes.
Ensure your loan officers use a standardized workflow
You don't have to accept the default settings of your LOS as your workflow. Sit down with your underwriters and managers so that the most compliant and efficient workflow can be figured out. Once you complete this, don't forget to put together a training plan plus a manual all employees can easily access.
In some cases, your LOS account representative may be able to provide ideas about how to design a workflow that will be conducive to your operations. Once all of your employees are on the same page, the pipeline should become more fluid, and the number of loan packages that make it to closing should increase.
When rethinking your origination process workflow, also look at ways to reduce cycle times. A lot can happen in a borrower’s life after the start of the application process. The faster you can cycle through an application process, the lower the odds a file will drop for reasons outside your control.
Improve the customer experience with a CRM and document submission portal
If your mortgage loan packages are not pulling through the pipeline because of document submission issues, the best course of action would be to set up an online portal or a mobile app for applicants and borrowers. You should also take advantage of automated CRM campaigns that remind potential borrowers about documents and information needed to move the loan package through.
Clean, simple and quick document submission flows are particularly helpful for first time homebuyers. These types of clients tend to have a higher document submission error rate than seasoned buyers.
In general, a poor customer experience can be highly detrimental to your expectations of getting more loans closed. For this reason, fine-tuning your CRM functions is a must, especially if your mortgage processors are also expected to provide customer service.
Limit financial services upsells to borrowers
Many mortgage providers offer add-on financial services to their loan packages. These upsells are usually incentivized. But offering those upsells slows down your entire mortgage pipeline. As we’ve seen earlier, slow cycle times affect pull-through rates.
That said, each mortgage market is different. To see if the financial services upsells are affecting your pull-through rates, run an A/B test. One month offer upsells, and the next don’t.
Offer employee bonuses based on metrics
Using your pull-through rate as the factor that decides whether processors and lenders get bonuses can improve your operations. Bonuses can be paid on a monthly or quarterly basis. A higher bonus payout frequency can boost the morale of processors who feel that loan officers and brokers get all the cash and glory. More importantly, bonuses that are based on hard metrics such as loan closings can help to keep members of your staff on their toes.
Listen to your applicants
Don't assume that all the loans that do not make it to closing failed because of external factors or because the borrowers were not cooperative. You should always listen to all sides of the story, particularly to your clients.
To this effect, you should give them opportunities to express their opinions or get in touch with managers. The key is to gather enough information from applicants so that you can identify processing issues.
The bottom line of mortgage pull-through rates
There may be times when you may need to endure a full quarter bogged down by low mortgage pull-through rates. This is not unusual during downturn periods in the housing market. But you should never go more than one quarter with rates lower than 75%.