What is a KPI?
The most consistent characteristic of mortgage lending is that it is always changing. To remain competitive and maximize profitability, lenders must constantly adjust their business strategies in response to ever-fluctuating interest rates and an ever-changing competitive landscape. The most effective way to do that is by using key performance indicators (KPIs).
A KPI is any metric used to measure performance against business objectives. Because different industries – and even different companies within the same industry – have unique business objectives, they also need unique KPIs.
What are Mortgage Lending KPIs?
KPIs are essential to understanding where the performance of your mortgage operation stands today, how it’s trending, and what needs to change in order to be more profitable or achieve other measures of organizational success. The mortgage origination process can be broken down into countless KPIs that help quantify performance at each stage in the loan lifecycle, from application to funding, and for each member of your team, from loan officers (LOs) and their assistants to processors, underwriters and closers.
There are three key factors to consider when identifying KPIs: relevance, reliability, and reportability.
In order to be effective, a KPI should be relevant to the individual employee’s role: the KPIs used to measure a LOs effectiveness, for example, should not be exactly the same as those used to assess an underwriter. An underwriter’s KPIs might include application approval rate, overall loan quality, and the average number of conditions per file, whereas typical KPIs for an LO might include total loans originated (units), loan volume, and pull through rate (the number of applications submitted that convert into funded loans).
In order to be reliable, KPI measurement should be based on up-to-date information retrieved directly from systems of record or a lender’s centralized data warehouse.
Finally, in order to be reportable, KPIs should be presented in the context of a balanced scorecard that is visible not only to the employee’s manager but to the employee as well.
Why Tracking KPIs is Critical to Profitability
When performance isn’t going to plan, it can be hard to pinpoint exactly what’s going on – especially without clearly defined KPIs. That’s because KPIs are critical to understanding the relationship between individual performance and overall operational success.
Imagine a lender whose financial performance has dropped precipitously from one quarter to the next. Loan application volume is on par with the previous quarter, but the lender simply isn’t funding as many mortgage loans, and it’s hurting their profitability. With the right KPI strategy in place, the lender will be able to zero in on the problems contributing to poor financial performance and correct them swiftly. For instance, if a lender is experiencing a high number of abandoned loan applications, management might suspect an application processing bottleneck. With the average cycle time configured as a KPI on each loan processor’s scorecard, it will be easy for the lender to identify the individuals causing the bottleneck and take corrective action. Similarly, if a lender is experiencing a low rate of approved applications, it could be helpful to examine underwriter performance to see if certain underwriters are gumming up the works with a particularly high average number of loan conditions.
What Mortgage KPIs Should You Be Tracking?
Nexus Vision offers a library of more than 100 mortgage KPIs that lenders can use to build customized scorecards for measuring and tracking the performance of loan originators, fulfillment personnel, and even branches.
A good way to start is by reviewing your strategic goals and identifying which KPIs best align with achieving them. Write down 3 to 5 high-level goals that align with your organizational objectives and rank them in order of importance. From here, identify what consistent and reliable data source you will use for each goal. For example, this could be your loan origination system, CRM, or accounting software.
Since every mortgage company has different strategic goals, there is no one “right” way to set up an employee scorecard, but here are some of the most popular KPIs for LOs according to our system data:
- KPI #1: Units Funded per Month (LO)
- KPI #2: Pull-Through Lock to Fund (%)
- KPI #3: # Days from App to Fund
- KPI #4: Revenue (BPS)
- KPI #5: Volume Funded per Month (LO)
Automate KPI Tracking with Nexus Vision
Nexus Vision makes it easy to select KPIs, create balanced scorecards, and track performance using powerful, at-a-glance data insights. For example, with Nexus Vision’s role-based scorecards, lenders can view how employees rank against their peers using a weighted score. The KPI Insights dashboard graphs team performance as a scatterplot, making it simple to identify outliers and view each team member’s performance across five performance bands ranging from poor to excellent. And for an even deeper understanding, lenders use the Employees Ranked Per KPI report to view how each team member’s rank has changed relative to their peers alongside a graph that showcases how their performance has improved or declined over time.
For a complete tour of Nexus Vision, schedule a demo today.