The mortgage industry is consistently changing and, to remain competitive, mortgage lenders must constantly adjust their marketing strategies in order to respond to the ever-changing interest rates and remain one step ahead of their competitors. One effective way to do this is by monitoring key performance indicators (KPIs). But what mortgage industry KPIs should you be monitoring and why? Here we take a closer look at some of the key KPIs you should be consistently monitoring to best adjust your strategies.
What are KPIs?
Key performance indicators, or KPIs, are defined as quantifiable measures used to evaluate the success or progress of an individual or business toward meeting key performance objectives or another end result. Tracking KPIs offers you insight into what strategic changes may be necessary in order to achieve your goals.
What are mortgage lending KPIs?
Mortgage KPIs measure the effectiveness and efficiency of your current loan process, including everything from initial contact to closing and beyond. Tracking KPIs allows you to see where your performance currently stands and how your business is trending, as well as provides insight into areas where you may need to implement change.
Why KPI tracking is important?
When your business performance is not achieving your desired goals, it can often be difficult to pinpoint exactly what isn’t working and why. Implementing clearly defined KPIs can provide critical information into the relationship between individual performance and the success of different aspects of the business.
For example, if lender performance has dropped from one quarter to the next despite loan application volume remaining consistent, what exactly is contributing to this drop in financial performance? By examining specific KPIs, such as abandoned loan applications and average cycle times, you will be able to see areas where an application processing delay is occurring.
Essential KPIs you should be tracking
To better determine which KPIs you should be tracking, it is essential to review your specific organization goals. Once you determine these goals, you can better identify which KPIs will help provide insight that will help you reach those established goals. Here we look at some of the key KPIs for the mortgage industry.
1. Pull-through rate
The pull-through rate KPI measures the efficiency of your pipeline. To calculate this metric, you divide your total funded loans by the number of applications submitted for the defined time period, such as monthly. This metric offers insight into the overall health of your operation, evaluating things such as your workflow efficiency, application quality, customer service, interest rate competitiveness, and how well your target market profile is actually working to achieve the results you are looking for. This specific KPI is not designed to single out a specific problem, but rather to evaluate your system as a whole and identify if there may be a potential problem.
2. Average cycle time
The average cycle time KPI is a fantastic metric for measuring your overall efficiency, with lower cycle times representing a more efficient process. To determine this metric, you divide the sum of days from application to funding on all loans by the number of total loans funded.
3. Average mortgage loan value
The average mortgage loan value KPI is a metric that provides information on loan profitability. In general, the workload required for a conforming conventional loan is not much different for a loan under $200,000 than it is for one over $500,000. However, the amount of revenue your company can generate from these two specific loans can be very different. To determine your average mortgage loan volume, you divide your total loan volume originated by the number of loans funded for the same period. The closer your average mortgage loan volume is to the conforming limit, the higher your profits are likely to be.
4. Application approval rate
The application approval rate KPI can provide valuable insight into two specific metrics: client acquisition and loan application workflow. When your application approval rate is low it can either mean you have a disruption in your workflow (problems with document gathering or a problem in the application review process) or you are not connecting with your ideal customer profile, but rather with unqualified applicants. To determine this KPI, you divide the number of approved applicants by the number of submitted applications.
5. Abandoned loan rate
The abandoned loan rate looks at those loans that receive approval but are never funded, often indicating potential post-application process problems. When a borrower applies for and is approved for a mortgage but never follows through, you have to question what is causing this. In many cases, this can indicate fluctuations in the interest rate competitiveness of your agency, problems with communication, or not following through with a client. To determine this KPI, you divide the number of approved applications not funded by the number of approved applications during the same time frame.
6. Customer acquisition cost
The customer acquisition cost KPI looks at how much it costs to acquire a customer in relation to their lifetime value to the company. To determine this metric, you divide your total cost of sales and marketing by the total number of new customers.
7. Cost per unit originated
The cost per unit originated KPI helps measure the efficiency of your business when it comes to operating expenses, cycle times, and your pull-through rates and how they are affecting your profitability. To determine this metric, you divide your total business expenses by the number of loans funded for the same period of time. Excess overhead expenses, such as salaries, can greatly affect your profit margin. Keeping your costs in line with your expected performance helps to ensure you maintain your desired profit.
8. Incomplete application rate
The incomplete application rate looks at loan applications that are closed for incompleteness. This can be due to several factors, such as an incomplete application or missing documents. When these occur, you have to ask yourself a number of questions. Are you targeting the right customer profile and is your target audience really in the position to close on a loan? Are you communicating the necessary steps and information needed to complete an application? To determine the KPI metric, you divide the number of applications closed for incompleteness by the number of applications received during the same time period.
Tracking KPIs provides valuable insight
Tracking the right KPIs can help you gain valuable insight into what is and is not working within your operation. Using these valuable tools can help you adjust your strategies to better boost lead generation, client acquisition, and your rate of loan closures.
At Good Vibe Squad, we understand the importance of understanding your client profile and generating leads that fit that profile. With KPIs, you can gain a better understanding of this client profile and tap into our Unfair Advantage™ program for a boost in your lead generation. To learn more about how the team at Good Vibe Squad can help improve your KPIs and lead generation, schedule a call today.