A new study from Mortgage Cadence, an Accenture (NYSE: ACN) company, identifies several key factors that differentiate high-performing lenders from others in today’s mortgage market, which is characterized by an industry-wide housing supply shortage and all-time-high costs to originate a mortgage.
Mortgage Cadence’s seventh annual Lending Performance Benchmarking Study draws on the analysis of data from mortgage lenders across the country that use the full suite of Mortgage Cadence loan origination technologies.
The report notes that high-performing lenders share three characteristics. First, they benchmark their performance against the competition, identifying areas for growth and improvement. Second, they optimize their staffing models and cross-train their teams so they can quickly adapt to the ebb and flow of loan volume without hiring additional team members, thereby maximizing profitability. Finally, high performers perfect their processes then map their loan journeys from application to close to eliminate bottlenecks, optimize technology and clarify ownership of touchpoints.
A key element of the study is Mortgage Cadence’s benchmarking of the year-over-year performance of its clients. The data compare individual lender performance year-over-year using five critical key performance indicators:
- Velocity — the amount of time it takes to close a loan;
- Borrower Share — the ratio of applications taken to total customer base in the same calendar year;
- Pull-Through — the ratio of closed loans to applications taken;
- Cost-to-Close — the total cost of manufacturing a single mortgage; and
- Productivity — the measure of closed loans per mortgage production employee per month.
The study notes that although Productivity improved to an average of 3.33 loans per employee in 2018, up from 3.29 in 2017, Velocity suffered, increasing by more than eight days in 2018, to 64.53 days. Pull-Through also suffered, dropping to 48.21% in 2018 from 50.08% in 2017. Both metrics contributed to the highest Cost-to-Close measure since the study’s inception: $5,643 (although still significantly less than the Mortgage Bankers Association (MBA) average of $8,975).
According to the study, the decrease in performance is partly the result of a housing supply problem: When the number of interested home buyers exceeds housing inventory, the pre-approval process is lengthened and Velocity increases. Pull-Through also suffers, as a lender can’t expect to close on an application if the borrower can’t find a home to purchase.
“The mortgage market’s volatility over the past 30 years has caused the Cost-to-Close to rise,” said Bryan Ireton, managing director for Mortgage Cadence, Accenture. “Even so, high-performing lenders have been able to consistently realize higher profits by fine-tuning their processes according to benchmarking results.”