A profitable mortgage company is one that constantly evaluates its decisions to ensure that the loans it is originating are profitable. The best decisions are made with the backing of solid metrics, to include mortgage lending key performance indicators (KPIs).
Mortgage lending KPIs are an invaluable tool that enable your team to really understand what’s going on beneath the surface. Basic and advanced KPIs serve an important role in the success of your company in the short and long-term.
8 Most Important KPIs
Unsure what to track or how to start? Here are seven of the most important KPIs that all lending teams should measure. Each of these KPIs can provide crucial insight into the health of your lending team and overall business operation.
1. Average Cycle Time
Average cycle time is the sum of days from application submission to load funding divided by the number of loans funded in the same period. This is a basic KPI that shows efficiency as well as areas where improvements can be made.
Poor cycle time directly correlates to loan profitability and pull-through rates. When loans don’t close on time, it’s a negative experience for borrowers and referral partners alike.
As improvements are integrated into the team’s process, average cycle time should decrease.
2. Pull-Through Rate
Pull-through rate is the number of funded loans divided by the number of applications submitted during the same period. This metric offers a high-level perspective into the health of your mortgage operations. It speaks to several factors, including:
- Workflow efficiency
- Level of customer service
- Quality of submitted applications
- Interest rate competitiveness
Pull-through rate also indicates if you’re working with the ideal customer profile (or not).
This metric doesn’t point to failure at a certain point of the mortgage process. Instead, it can be used to identify if there are any inefficiencies. At the same time, pull-through rate can also be used to determine if your lending team is ready to take on more loan applications.
3. Mortgage Lead Conversion Rates
It’s important to track how many leads coming from marketing channels are converting into loans. You may be spending marketing dollars on paid search and paid social campaigns, purchasing lead lists, running organic social media campaigns, and working with partners and influencers to generate leads. But do you know which marketing initiatives are bringing in the highest quality leads?
In addition, how you nurture those leads is equally as important. You can simply assign your loan officers to cold call the leads hoping some of them are in-market and looking to buy. Or you can send promotional e blasts to engage leads. Unfortunately, those often land in junk folders and cause prospects to unsubscribe because of their promotional nature.
Instead, to improve your mortgage leads conversion rates you can use tools like Senso to identify in-market customers and send them personalized campaigns based on their affordability and neighbourhood preferences. Such campaigns have proven to increase engagement rates by up to 300% due to their high relevance to homebuyers.
4. Average Mortgage Loan Value
If you’re looking to put a number to loan profitability, this is a must track KPI. Average mortgage loan value is the total loan volume originated divided by the number of loans funded in the same period.
The workload for a conforming conventional loan doesn’t change much, no matter if the loan is for $200,000 or $450,000. The most notable difference is the revenue generated from each of them.
Strive for an average mortgage loan volume that is close to the conforming limit. The closer you are, the more likely your lending team is to generate strong profit.
5. Application Approval Rate
Application approval rate is the number of approved applications divided by the number of submitted applications. This metric provides crucial insight into your loan application workflow as well as client acquisition.
A low application approval rate indicates one of two problems. The first is a disconnect in identifying the ideal customer profile. This leads to a growing number of mortgage application submissions from unqualified applicants. The other issue could involve the document gathering and application review processes.
A poor application approval rate is a telltale sign that your operation is wasting time and money.
6. Cost per Unit Originated
Cost per unit originated is the total production cost divided by the number of loans funded in the same period. This KPI measures efficiency relative to many factors, including cycle times, staffing, office expense, and pull-through rate.
Any deficiencies in these areas can lead to excess overhead expenses, which leads to a high cost per unit. This has a direct impact on profitability.
Hiring timing is crucial. Hiring too soon can cause cost per unit to soar, while hiring too late can cause severe lags in cycle time. We saw an example of this during the initial period of COVID-19, where many originators and servicers were challenged by a lack of staff to meet demand.
7. Abandoned Loan Rate
Abandoned loan rate is the number of approved but not funded applications divided by the number of approved applications in the same period. This metric indicates potential issues with post-application processes.
If applicants are approved for a loan but not going through with the process, lending teams should be questioning why a qualified and approved borrower abandoned the loan. This is where automated nurturing and engagement in your lower funnel is critical.
A high abandoned loan rate could be due to poor engagement or interest rate competitiveness.
8. Profit per Loan
Profit per loan is total business revenue minus total production cost divided by the number of loans funded in the same period.
Total loan volume often gets all of the attention, but profit per loan is the much more important number to track. This metric is the best way to assess the health of your mortgage operations.
Companies may experience low profit per loan due to low average loan value or high cost per unit originated loan.
KPIs Directly Impact Profitability
When loans aren’t closing on time or performance isn’t going as planned, it can be impossible to pinpoint what’s going wrong. This is why it’s so important to track clearly defined KPIs. These metrics are critical in understanding the relationship between performance and operational success.
Imagine the scenario of your team’s financial performance dropping from one quarter to the next, even though loan application volume has held steady. In this instance, you should be wondering why you aren’t funding as many mortgage loans.
Having the right KPI strategy enables you to zero in on the issues contributing to poor financial performance. Maybe there’s a bottleneck in application processing that is causing an increase in abandoned loan applications. Or maybe loan approval rates have dropped, which could be caused by poor underwriter performance.
Whatever the cause may be, tracking the right KPIs makes it possible to identify what’s going wrong. In turn, you can make swift corrections to get numbers back on track.
Final Thoughts
Neglecting KPIs will have a lasting impact on profitability. The inability to pinpoint what’s wrong makes it impossible to make improvements. To ensure you have the most accurate and up-to-date numbers, invest in a third-party tool that connects to your existing data flows and application processing systems.
By tracking these seven KPIs, you can finally make headway on improving profitability so that you meet or surpass this year’s goals.
With Senso you can identify in-market customers who are engaging with your content, and proactively nurture them with data-driven personalized campaigns via email, text, website, or banking app leading to higher pre-approval rates and sales.