Digital Mortgage and Its Impact on Performance

If we have learned anything over the six years we’ve been performing the Mortgage Cadence Benchmarking Study, it’s that the ultimate goal of every successful lender is performance. Every metric our customers track sheds light on this important quality. The most successful lenders—regardless of the measurement you choose—are high performance lenders.

Performance in the lending enterprise is achieved by weaving together five key elements, which we have identified as the five keys to high performance lending. These key performance indicators are the best gauges of the lender’s ability to compete, serve its customers effectively, and earn a profit.

We have been measuring these KPIs—Velocity, Borrower Share, Pull Through, Productivity, and Cost-to-Close—for the past six years for a set of lenders who operate under the same basic business model, all serving the same demographics and using the same loan origination technology. One might assume that given these similarities, the lenders in our study should all perform similarly. However, that is not what the data reveal.

Among the many things our rich dataset suggests is that if the technology alone was a key contributor to performance, all lenders using a given technology should operate within the same range. If solely technology could make the difference, those using the “best” LOS would all perform at a very high level. The truth is, however, that technology is only part of the answer.

We have defined the ultimate lender performance equation elsewhere, and other factors exist within. These consist of People and Process, neither of which can be ignored if a lender wants to perform to their potential.

This is extraordinarily bad news for technology vendors who aim to simply automate everything that is automatable and then expect their customers to perform at high levels. Plausibly, it won’t happen.

What does this suggest for those lenders rushing to digital in the hope that it will make them the ultimate choice of every consumer? The lender’s proximity to a completely digital process is not an indicator of the lender’s actual performance.

Am I suggesting that it doesn’t matter what technology the lender employs? Of course not. The lender needs great technology and should expect to pay about five to ten percent of the total cost to close for its platform. People account for 50% to 60% of the typical lender’s cost to close; other direct and indirect expenses account for the rest.

Failing to consider each element in the lender’s performance equation sets the institution up for failure. In future posts, I’ll talk about how some of the most successful lenders in the industry are maximizing their performance and reaping the benefits.