What Are the Top 7 KPIs for a Digital Mortgage Lending Business?

As digital mortgage lending continues to transform the financial landscape, small business owners and artisans in the artisan marketplace are seeking new ways to measure and improve their performance. Key Performance Indicators, or KPIs, are essential tools for tracking and understanding the success of digital mortgage lending strategies. In this blog post, we will explore 7 industry-specific KPIs that are crucial for small business owners and artisans to monitor in order to maximize their success in the digital mortgage lending space. From conversion rates to customer acquisition costs, we will provide unique insights and practical tips for utilizing these KPIs to drive growth and profitability in the artisan marketplace.

Digital Application Completion Rate

Definition

The Digital Application Completion Rate is a key performance indicator that measures the percentage of loan applications completed digitally without the need for manual intervention. This ratio is critical to measure as it reflects the efficiency and effectiveness of the digital mortgage lending platform in providing a seamless user experience. In the business context, a high Digital Application Completion Rate signifies that the platform is user-friendly and easy to navigate, leading to increased customer satisfaction and loyalty. It also indicates operational efficiency, as less manual intervention is required, reducing the time and resources needed to process loan applications. This KPI is critical to measure as it directly impacts business performance by influencing customer acquisition, retention, and operational costs.

How To Calculate

The Digital Application Completion Rate can be calculated by dividing the number of loan applications successfully completed digitally by the total number of loan applications received, and then multiplying the result by 100 to obtain the percentage.

Example

For example, if a digital mortgage lending platform receives 300 loan applications, out of which 240 are successfully completed using the digital application process, the Digital Application Completion Rate would be calculated as follows: Digital Application Completion Rate = (240 / 300) x 100 = 80%. This means that 80% of the loan applications were completed digitally without the need for manual intervention.

Benefits and Limitations

The Digital Application Completion Rate is advantageous as it provides insight into the effectiveness of the digital mortgage lending platform in delivering a seamless customer experience and optimizing operational efficiency. However, it does not take into account the quality of the completed applications or the conversion rate from completed applications to approved loans, which are also critical metrics in assessing the overall performance of the lending process.

Industry Benchmarks

According to industry benchmarks, the typical Digital Application Completion Rate for digital mortgage lending platforms in the US ranges from 70% to 80%, with above-average performance levels reaching 85% to 90% and exceptional performance levels exceeding 90%. These benchmarks serve as a reference for evaluating the efficiency of the digital application process within the mortgage lending industry.

Tips and Tricks

• Streamline the digital application process by removing unnecessary steps and simplifying the user interface.
• Provide real-time assistance and guidance to users during the application process to minimize errors and drop-offs.
• Implement user-friendly document upload features to facilitate the submission of required materials.
• Regularly analyze user feedback and behavior to identify areas for improvement in the digital application process.

Loan Approval Time

Definition

Loan approval time is the key performance indicator that measures the average time taken to process and approve a mortgage loan application. This ratio is critical to measure as it directly impacts the borrower's experience and satisfaction with the lending process. In the business context, a lengthy loan approval time can lead to customer dissatisfaction, drop-offs in the application process, and potential loss of business. On the other hand, a quick approval time can enhance customer experience, improve customer retention, and streamline overall operations. Therefore, it is critical to monitor and optimize loan approval time to ensure business success.

How To Calculate

The formula for calculating loan approval time is the total time taken to process and approve a mortgage loan application divided by the total number of mortgage loan applications processed. The total time includes the time taken for initial document submission, verification, underwriting, and final approval. By dividing this by the total number of applications, the average loan approval time can be determined.

Example

For example, if a lender processed 100 mortgage loan applications in a month and the total time taken to process and approve all applications was 500 hours, the average loan approval time would be 5 hours per application.

Benefits and Limitations

The benefit of monitoring loan approval time is that it allows lenders to identify bottlenecks and streamline processes to improve borrower experience and overall operational efficiency. However, the limitation is that the calculation does not account for variability in the complexity of applications, which may result in some loans taking longer to process than others.

Industry Benchmarks

According to industry benchmarks, the average loan approval time for mortgage applications in the US is approximately 40 days. However, top-performing lenders can approve loans in as little as 14 days, while others may take up to 60 days. It is important for lenders to strive for an average approval time that is below industry average to maintain a competitive edge and enhance customer satisfaction.

Tips and Tricks

• Implement digital mortgage processing tools to automate and streamline the approval process
• Optimize communication channels to ensure quick and efficient document exchange with borrowers
• Regularly review and improve underwriting processes to reduce approval time
• Provide borrowers with clear expectations regarding the approval timeline to manage their expectations

Customer Satisfaction Score (CSAT)

Definition

The Customer Satisfaction Score (CSAT) is a key performance indicator that measures the level of satisfaction customers have with a company's products, services, or overall experience. In the digital mortgage lending industry, CSAT is critical to measure because it provides insights into the effectiveness of the platform in meeting the needs and expectations of borrowers. A high CSAT indicates that customers are pleased with the ease of use, transparency, and support offered by the digital mortgage process. This KPI is important in the business context as it directly impacts customer retention, repeat business, and referrals, influencing long-term profitability and market reputation.

How To Calculate

The CSAT is calculated by taking the total number of positive customer responses and dividing it by the total number of survey responses received. The result is then multiplied by 100 to obtain the percentage score. Positive responses typically include 'satisfied' or 'very satisfied' ratings from customer surveys, while negative responses may include 'neutral,' 'unsatisfied,' or 'very unsatisfied.' The formula for CSAT is as follows:

Example

For example, if HomeStream Lending receives 200 survey responses from recent borrowers and 165 of them express satisfaction with the digital mortgage process, the CSAT calculation would be as follows:

CSAT = (165 / 200) x 100 = 82.5%

Benefits and Limitations

The primary benefit of measuring CSAT is that it provides immediate feedback on customer sentiment, allowing the company to identify areas for improvement and strengthen customer relationships. However, a limitation of CSAT is that it may not capture the full spectrum of customer experiences and emotions, as it often relies on a single question survey format. Additionally, customers who do not respond to surveys may skew the results, impacting the accuracy of the score.

Industry Benchmarks

Within the U.S. digital mortgage lending industry, the typical benchmark for CSAT ranges from 80-90% for above-average performance. Exceptional performance may exceed 90%, reflecting highly satisfied customers who are likely to promote the platform to others. These benchmarks are based on industry data and reflect the competitive landscape of the digital mortgage space.

Tips and Tricks

• Send short, targeted CSAT surveys after specific touchpoints in the mortgage process, such as application submission, loan approval, and closing.
• Act on the feedback received to address pain points and enhance the overall experience for future borrowers.
• Share positive CSAT scores with the team to reinforce customer-centric goals and recognize outstanding performance.

Pre-Approval to Closing Conversion Rate

Definition

The Pre-Approval to Closing Conversion Rate is a key performance indicator that measures the percentage of mortgage applications that successfully progress from the pre-approval stage to the closing stage. This ratio is critical to measure as it provides insights into the efficiency and effectiveness of the mortgage lending process. For businesses, understanding this KPI is crucial as it directly impacts the overall performance and success of the lending operations. A high conversion rate indicates that the company is successful in pre-approving potential borrowers who are likely to close on a loan, which positively impacts revenue and customer satisfaction. On the other hand, a low conversion rate could point out inefficiencies in the pre-approval process, resulting in wasted time and resources.

How To Calculate

The formula for calculating the Pre-Approval to Closing Conversion Rate is: In this formula, the number of closed loans refers to the total number of mortgage loans that have been successfully closed, while the number of pre-approved loans represents the total number of loans that have been pre-approved. By dividing the number of closed loans by the number of pre-approved loans and multiplying the result by 100, you can obtain the conversion rate as a percentage.

Example

For example, if a mortgage lender pre-approves 100 loan applications and 80 of them successfully progress to the closing stage, the Pre-Approval to Closing Conversion Rate would be calculated as follows: (80 / 100) x 100 = 80% This means that 80% of the pre-approved loans resulted in successful closings.

Benefits and Limitations

One of the primary benefits of measuring the Pre-Approval to Closing Conversion Rate is that it provides valuable insights into the effectiveness of the pre-approval process, allowing lenders to identify potential bottlenecks and areas for improvement. However, a limitation of this KPI is that it does not provide a comprehensive view of the entire mortgage lending process and should be analyzed in conjunction with other KPIs to gain a more complete understanding of performance.

Industry Benchmarks

In the US, typical industry benchmarks for the Pre-Approval to Closing Conversion Rate range from 70% to 90%. Above-average performance would be considered anything above 90%, while exceptional performance may exceed 95%.

Tips and Tricks

- Implement a thorough pre-approval process to ensure that only qualified applicants advance to the closing stage - Provide ongoing training to loan officers to improve their ability to pre-approve suitable borrowers - Use customer feedback to continuously refine and improve the pre-approval process - Utilize technology and data analytics to identify patterns and trends that can help optimize the conversion rate

• Regularly review and update pre-approval criteria based on market trends
• Establish clear communication channels between loan officers and potential borrowers to address any concerns or questions
• Monitor and track the conversion rate over time to identify any fluctuations or trends

Average Loan Processing Cost

Definition

The average loan processing cost is a key performance indicator that measures the average expenses incurred in processing a mortgage loan application. This ratio is critical to measure as it provides insight into the operational efficiency and cost-effectiveness of the mortgage lending process. By tracking this KPI, mortgage lenders can identify opportunities to streamline processes, reduce expenses, and improve overall business performance. Understanding the average loan processing cost is crucial in optimizing resource allocation and ensuring profitability in the lending business.

How To Calculate

The average loan processing cost can be calculated by dividing the total processing costs by the number of loans processed. The total processing costs include expenses related to underwriting, appraisal, credit reports, and other administrative tasks. By dividing this total by the number of loans processed, lenders can determine the average cost incurred per loan, providing a clear picture of operational efficiency and cost management.

Example

For example, if a mortgage lender incurred total processing costs of $100,000 for 200 loans processed in a given period, the average loan processing cost would be $500 per loan ($100,000 / 200 loans).

Benefits and Limitations

The benefit of tracking the average loan processing cost is the ability to identify cost-saving opportunities and improve operational efficiency. However, it's important to note that this KPI alone may not provide a comprehensive view of the overall quality of the lending process or customer satisfaction. It should be considered alongside other performance indicators to ensure a well-rounded evaluation of the mortgage lending operations.

Industry Benchmarks

According to industry benchmarks, the average loan processing cost in the mortgage lending industry typically ranges from $2,500 to $3,500 per loan. Lenders aiming for above-average performance should aim to keep their average loan processing cost below $2,500 per loan. Exceptional performance in this area may see the average cost drop below $2,000 per loan.

Tips and Tricks

• Automate routine tasks to reduce manual processing costs.
• Implement technology solutions for document management and workflow optimization.
• Regularly review and renegotiate vendor contracts to lower processing expenses.
• Train staff to improve productivity and efficiency in processing loan applications.

Rate Lock Expiration Rate

Definition

The Rate Lock Expiration Rate is a key performance indicator (KPI) that measures the percentage of mortgage loans for which the interest rate lock expires before the loan closes. This ratio is critical to measure because it reflects the efficiency of the loan processing and closing procedures. It is crucial for businesses in the digital mortgage lending industry to monitor this KPI as it directly impacts customer satisfaction, operational costs, and overall business performance. An increase in the rate lock expiration rate can result in delayed closings, increased administrative work, and potential loss of customers, while a low rate lock expiration rate is indicative of a well-functioning and efficient loan processing system. Therefore, it matters as it directly affects the bottom line of the business and its reputation in the market.

How To Calculate

The Rate Lock Expiration Rate can be calculated by dividing the number of loans that experience a rate lock expiration by the total number of loans originated or in process, and then multiplying by 100 to get the percentage.

Example

For example, if a digital mortgage lending company had 20 loans with rate lock expiration out of a total of 100 loans, the Rate Lock Expiration Rate would be (20 / 100) x 100, resulting in a rate of 20%.

Benefits and Limitations

The advantage of tracking the Rate Lock Expiration Rate is that it allows businesses to identify and address bottlenecks in their loan processing and closing workflows, thereby improving customer experience and operational efficiency. However, this KPI does not account for the reasons behind rate lock expiration, which may vary from customer-related issues to internal operational challenges.

Industry Benchmarks

Within the US context, the typical Rate Lock Expiration Rate in the digital mortgage lending industry ranges from 15% to 30%. Above-average performance would be considered a rate below 15%, while exceptional performance would be reflected in a rate under 10%.

Tips and Tricks

• Implement a robust and transparent communication system with customers to avoid delays in submitting necessary documents for rate lock extensions.
• Automate rate lock expiration tracking and alerts to ensure timely follow-up and resolution.
• Regularly review loan processing workflows to identify and address potential bottlenecks in the process.
• Train staff to anticipate and proactively manage potential causes of rate lock expiration.

Borrower Retention Rate

Definition

The borrower retention rate is a key performance indicator that measures the percentage of customers who choose to stay with HomeStream Lending and continue their mortgage relationship. This ratio is critical to measure as it reflects the customer satisfaction and loyalty towards the company's services. A high borrower retention rate indicates that HomeStream Lending is providing exceptional customer experience and maintaining strong relationships with its clients. This KPI is critical to measure as it directly impacts the company's financial performance, reputation, and long-term sustainability in the competitive mortgage lending industry. A high borrower retention rate means lower customer acquisition costs, increased customer lifetime value, and positive word-of-mouth referrals, while a low retention rate may indicate issues with service quality, product offerings, or customer support.

How To Calculate

The borrower retention rate can be calculated by dividing the number of customers at the end of a period by the number of customers at the beginning of that same period and multiplying the result by 100 to get the percentage. This formula measures the rate at which HomeStream Lending is able to retain its customers over a specific time frame, providing insight into customer loyalty and satisfaction.

Example

For example, if HomeStream Lending begins the year with 500 mortgage customers and ends the year with 450 of those original customers still engaged with the company, the borrower retention rate would be calculated as (450/500) * 100, resulting in a 90% retention rate for the year.

Benefits and Limitations

The benefits of a high borrower retention rate include lower customer acquisition costs, increased customer lifetime value, positive word-of-mouth referrals, and a strong reputation in the market. However, the limitations may include potential biases in the calculation and the inability to capture the reasons behind customer retention or attrition.

Industry Benchmarks

In the US, the average borrower retention rate for mortgage lending companies is around 75%, with top-performing companies achieving rates of 85% or higher. Exceptional performance in borrower retention rate may reach 90% or above, showcasing a strong and loyal customer base.

Tips and Tricks

- Provide exceptional customer service and support to build strong relationships with borrowers - Offer personalized mortgage solutions and ongoing communication to maintain customer engagement - Implement loyalty programs and incentives to reward customer loyalty - Gather and analyze customer feedback to continuously improve the mortgage lending experience.