5 KPIs that Profitable Lending Teams Measure

profitable lending teams

There’s no denying that 2018 has been a tough year for mortgage lenders. Longer cycle times, lower refinance volume, and increasing costs to compete for borrowers means tighter margins. In Q1 of 2018, loan origination costs increased to $8,957 per loan. As loan costs rise, how can lenders stay profitable?

Lenders across the nation have been struggling to answer that very question. According to a 2018 Oliver Wyman study, 65% of loan costs are personnel-related. Old-school traditionalists might be inclined to jump directly to minimizing head count, but that will only compound the issue. The efficiency of your personnel—not the volume of personnel on your team—is the crux of the issue.

A key step to improving profitability is understanding—at a very deep level— your team’s performance. Tracking key metrics that provide insight into your loan pipeline and team productivity will dictate where to focus your efforts later to improve performance. Unsure where to start? Here are 5 loan KPIs to measure for a profitable lending team.

Velocity

What to measure:

The number of days from application to close.

How to Understand Velocity Metric Results:

Your team’s velocity KPI will range anywhere from rapid closes in the 15-30 day range (don’t scoff, it’s possible! Lenders in Maxwell average around 22 days from loan application to close) to slower closes that can take 60 or even 70 days.

Logically, faster time-to-close will positively impact your pull-through, productivity, and cost-to-close.

Pull-Through

What to Measure:

The ratio of closed loans to submitted applications, including To-Be-Determined (TBD) applications (applications that lack a property address at the time of origination).

How to Understand Pull-Through Metrics:

The higher the percentage, the better. According to Accenture, the ideal pull-through rate is 60% or greater. Make the goal for your lenders 60%, as hitting that metric is a surefire way to improve productivity and expand your market share.

LO Productivity

What to Measure:

Closed mortgage loans per mortgage employee per month. This is the most important metric in the industry when it comes to improving performance. It is also the single biggest indicator of how well a lender is serving its borrowers.

How to Understand Productivity Metrics:

It should go without saying that the larger the number here, the better. Accenture reports indicate that this metric generally ranges from 1.5 on the low side up to 9 on the high side, with an average being in the mid-3s.

Cost-to-Close

What to Measure:

The sum of mortgage labor costs, direct mortgage costs, indirect mortgage costs, and digital mortgage technology costs, divided by the number of closed loans (calculated over a 12-month period).

How to Understand Cost-to-Close Metrics:

The goal is to get this number as low as possible. The lower this number is, the more competitive your business is in the market.

Employees per Thousand Closed Loans

What to Measure:

Divide the total number of mortgage employees by total loans closed annually. Multiply number by 1,000.

How to Understand Employees per Thousand Closed Loans Metrics:

Like cost-to-close, this metric shares an inverse relationship with productivity. When productivity is higher, this number ought to be low.

Bringing It All Together

Obviously, tracking these KPIs for your team won’t magically make you more profitable. It will, however, give you deeper insight into the productivity of your team. The next step is taking those insights and making them actionable by taking a cold, hard look at your team’s process and identifying ways you can help them be more productive for improved profitability.

 

For more on how to improve profitability in a difficult market, read our eBook: