Brokers — Evaluate your Loan Officers’ Performance with KPI’s that really matter…

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The mortgage industry doesn’t work on “hunches.” It’s data-driven.

When the federal reserve adjusts the federal fund rate, mortgage rates and the housing market respond. As a mortgage professional, you use those metrics to advise borrowers on which loan is best for their situation.

With an industry that is mostly determined by metrics, why then, do so many mortgage business owners make decisions based on “gut feelings” and determine profitability based on the LO’s hustle?

Just like everything else in the finance and mortgages, key performance indicators (or KPIs) are the clearest, most unbiased, and purposeful metrics for measuring mortgage business success.

Vanity metrics such as prospects in the pipeline and total loan volume origination offer little value in understanding how profitable and efficient your mortgage office and loan originators are.

KPIs, on the other hand, are measurable and actionable.

They give you solid insight into current situations and planning future strategies. Mortgage KPIs help you to see both the details and the big picture, identifying those gaps that are draining the business and highlighting strengths that have the potential to sky-rocket.

Stop rolling the dice on your mortgage business and find out what Loan Officer KPIs you should be measuring to compete in the Digital Mortgage landscape.

How to Calculate Key Performance Indicators (KPI) for Loan Officers

Average Cycle Time

Calculation: {sum of days from application to funding} divided by {amount of funded loans during the same timeframe}

Why This Matters: This calculation sets a benchmark and is a good indicator of overall efficiency. As you make adjustments and add digital mortgage tools to improve LO performance, you should expect the average cycle time to decrease as you process new loans.

Cycle time is an indicator that’s critical to your loan prospects too. Instead of just lip-service that your office closes loans “fast,” you have hard numbers proving it. Working with referral partners and realtors? Show them your KPI as further proof that your office is reliable and deserves their mortgage referrals.

Application Conversion Rate

Calculation: {amount of funded loans} divided by {amount of applications submitted in the same timeframe}

Why This Matters: The loan application conversion rate, or pull-through rate, measures the amount of 1003’s submitted that resulted in a funded loan. Though it doesn’t measure any one part of your lending business, it serves as an indicator for inefficiencies in the mortgage origination process.

Low conversion rates are often the result of LO’s spending too much time on loans that never close, excessive touch points with other origination staff, extended cycle time, inefficient communication with the borrower, or lack of competitive rates.

Just like cycle time, as you make improvements to your mortgage processing, you should expect this number to increase.

Average Origination Value Per Loan

Calculate: {total loan origination volume} divided by {amount of funded loans in the same timeframe}

Why this matters: Origination value measures the total revenue earned for each loan over a given time. This metric considers origination fees, underwriting fees, and any other administration fees you add for revenue. A low value for this KPI could be a sign of:

  • a low average value of loans originated
  • origination fees that are below industry averages

Loan origination fees typically vary based on the value of the loan –the smaller loan, the higher the fee and vice versa. If this KPI is low, you’ll want to take a critical look at your origination fees, how they compare to industry standards, how to better justify these fees to your loan prospects.

Cost Per Loan Originated

Calculation: {total business expenses}  divided by {amount of funded loans in the same timeframe}

Why this matters: This KPI measures the efficiency of your operation and takes into account factors such as staffing, overhead expenses, cycle times, and loan conversion rates. Keeping your cost per unit in line is critical to maintaining profitability as you scale your mortgage office.

A low KPI can be a sign of poor planning in staffing, lagging loan conversion rates, LO’s spending too much time per loan, and other factors that drive up the cost and lower profitability per unit.

Application Approval Rate

Calculate: {amount of approved applications} divided by {amount of submitted applications}

Why This matters: A low number in this KPI means that you’re spending too much of your resources on dead-end applications. You’ll want to look at ways to expedite the document gathering and loan review process to minimize spending resources on unqualified borrower applications.

Fall-out Rate

Calculate: {amount of rate-locked applications that fail to close) divided by {total amount of rate-locked applications in the same timeframe}

Why this matters:  Fall-out rate is an indicator of the LO’s inability to close a loan. A low number here should cause you to evaluate their performance to find out where the inefficiency lies. Read this previous article on ways to boost LO performance.

Revenue Per Loan

Calculate: {(total business revenue) minus (total business expense)} divided by {amount of funded loans in the same timeframe}

Why this matters: Revenue per loan is a far more significant value in assessing the health of your mortgage operation than how many loans are in your pipeline. Similar to the average origination value that you calculated above, this KPI will give you insight into the profit for an individual loan or loan type.

Improving efficiencies in mortgage processing, such as adding digital mortgage tools that reduce processing touchpoints, will increase the revenue per unit.

Rate of Abandoned Mortgage Applications

Calculate: {amount of approved applications that were not funded} divided by {total amount of approved applications in the same timeframe}

Why This Matters: A high rate of abandoned loans can be indicative of issues with your post-application processes such as steps needed to continue the loan or a lack of communication from the LO.

Where To Go From Here

Utilizing the abovementioned KPIs for performance evaluation, profitability analysis, and decision-making is just the beginning. That doesn’t lessen their criticalness –they may be basic, but they are indispensable for understanding where the gaps lie in the workflow.

Have you already identified an inefficiency in the mortgage process? Call us to get matched with the right digital mortgage solution.

About LenderHomePage: We are the provider of an adaptable, extensible, and configurable digital mortgage platform From a digital 1003 to mortgage website templates to a brandable mortgage POS system, LenderHomePage designs scalable solutions that enhance borrower experience, streamline the mortgage process and increase Loan Officer productivity and efficiency.

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