What Are KPIs For Mortgage Lenders
The mortgage lending business is complex enough as it is. The highly competitive nature of this business makes managing complexity even more essential. That's why you need these essential mortgage lending KPIs.
KPIs are the cornerstone of any mortgage business intelligence platform. They provide a succinct and focused view of your lending business.
To adequately manage a mortgage business, one must have access to actionable performance related data. This is where KPI’s or key performance indicators come in. They are a must for any mortgage business intelligence solution.
Why You Should Care About Mortgage Lending KPIs
Before we cover the 10 most important KPI’s for your mortgage business, it is worth outlining the benefits and pitfalls of measuring your mortgage business.
There are so many KPI’s available that it is easy to get lost in the minutia. Similarly, it’s easy to focus on one particular aspect of your business while being blind to other important parts.
What Not To Do
Here’s an example; sales are what drives a mortgage company's success, but it is not the only factor. A lender can have a great sales team, but their execution may be lacking. Also, the cost to produce alone, may be way out of a reasonable range. Thus, profitability can be impacted even though sales are strong. This seems obvious, but many managers focus too much on sales and fail to integrate other aspects of the business.
People tend to focus too much on low hanging fruit. For example, if data is easily accessible, managers may not be blind to the nuances of a particular metric. For example, sales may be trending up for a particular. But if they are not matching the market place, you may be under performing.
Finally, managers may be using too many KPI’s. This can create confusion, especially when the KPI’s are similar and wind up measuring the same element of business performance. To learn more, read, Common mortgage business intelligence mistakes.
Top Mortgage Lending KPIs
- Units & volume
- Future fundings
- Pull through Rate
- Cost per loan
- Break even
- Branch profitability
- Productivity by person
- Loans late in the pipeline
- Percent of On-time loans
I. Sales Metrics
1. Units and Volume
Loan counts volume are the bread and butter of any mortgage lending BI platform. These are also the easiest to collect since all loan origination software (LOS) makes these readily available.
Don’t let the simple nature of these metrics fool you. There are nuances that can confound your efforts. For example, should you include only first lien? From a performance perspective, counting first liens is the cleanest way to gauge sale performance.
There are several characteristics of individual loans that may be of interest. These are referred to “dimensions” in the data science world. Examples include loan type, lead source, and loan purpose (ex. purchase, refi, refi-cash-out).
Of these, lead source is the most dynamic. Cultivating new lead sources and nurturing existing relationships are among the most proactive ways to grow your business.
Units and volume are an integral part of evaluating loan office (LOs) performance. They feed LO rankings, score cards, and goal management.
Locks are next on the list. There are a number of ways to look at locks. Know which loans are expiring soon helps you avoid having them fall through the cracks. Total lock count is an excellent leading indicator of productivity. They should be viewable by LO, branch, region, and the company as a whole. In addition, this metric also lends itself well to trend analysis.
3. Future Funding
Future fund analysis is among the most reliable predictors of sales. It considers active loans in your pipeline to predict month-end volume and units funded. It should include a timeline of fundings for each loan and details.
4. Pull Through Rate
This is a KPI that measures how many started loans actually make it to funding. It is a powerful start-to-end metric that tells you how effective your team is at pre-qualifying borrowers. In addition, this KPI also indicates how well you can engage prospective borrowers through the sales process. A poor pull-through rate may indicate that borrowers are either dropping out because they don't qualify for a loan or they find a better deal else where.
II. Profitability KPIs
Profitability is the reason a company exists. However, many mortgage lenders don’t have a good handle on the actual profitability of their enterprise. This is because the mortgage business is inherently complex and it depends on GAP accounting, which is not the best method to provide information about accountability.
For example, GAP accounting figures in one-time payments such as PPP and derivatives. This is required for reporting purposes to banks and other interested parties, but it does not provide reliable information on actual profitability.
You’ll need a managerial accounting approach to get to that information. However, most CFOs and their staff focus on gap accounting as opposed to managerial accounting. Therefore, it’s no surprise that few mortgage business intelligence platforms provide metrics around actual profitability. Telemetry BI is one such system. It focuses on a number of profitability and other mortgage lending KPI’s in financial reports. Among the most important ones are as follows.
5. Cost per loan
This is the central measure of profitability that breaks down the actual cost per loan. It takes into account both fixed and variable cost.
When cost per loan is trending up, it’s critical to be able to identify the cause of those increases. This is where a branch level in the corporate level P&L comes in to play. You should be able to identify increases in fixed and variable costs and drill down on the details with a good P&L. No mortgage business intelligence solution is complete without P&L reports.
6. Break-Even Point
At any given time, you should be able to identify how many loans are needed to break even for the month. This KPI is a must for managing your business. It takes into account your fixed expenses from the P&L and indicates how many loans you’ll need to make a profit. You can also use this KPI to gauge the impact of adding capacity to your operation, such as more processors and underwriters.
7. Branch profitability
Suppose you have a branch that produces a high volume of loans and another one that produces far less. Should you assume that the large producing branch is more profitable than the other? Maybe not, overhead expenses like leases and rent as well as executive and staff compensation can have a huge impact on branch profitability.
In addition to knowing how profitable each branch is, you should have an idea of how much their relative and absolute contribution to company overhead is. This is a big topic and is often overlooked and most business intelligence platforms. To learn more, read about how measure branch profitability.
III. Production KPIs
The most stellar sales effort in the world can’t make up for bad production. Efficient operations and monitoring are critical to moving loans through the pipeline to get them funded and sold. It’s a complex process with lots of moving parts. That’s why you need the following KPI’s.
8. Productivity by person
Underwriters, processors, funders, shippers, and servicers are critical to the loan process, but they all have different criteria on which to evaluate them. The one thing they have in common is throughput, how quickly they can complete a mile stone. This measure of efficiency along with the number of loans that they complete are the key to this KPI.
9. Loans late in the pipeline
When staff fail to perform or run into difficult loans, it is necessary to intervene in order to maintain profitability. To that end, you should be able to identify loans that are late based on the SLA’s for the mile stone. You should also be able to identify loans that are getting close to that threshold.
10. Percent of On-time loans
Much like the last KPI, percent of on time loans reflect the performance of your staff. They should be stable or trending up. The definition of an on-time loan should be based on the expected close date which takes into account the SLAs of each loan production mile stone.
Mortgage Lending KPIs Conclusion
Mortgage lending KPIs can help drive your business to success by focusing you and your staff on critical goals. Checkout Telemetry BI to get a turn-key, out-of-the box mortgage business intelligence system. Take advantage of data analytics best-practices for KPIs, dashboards, and automated financial reports.