2019 Mortgage Cadence Annual Benchmarking Study - Executive Summary

Executive Summary

The results of the 2019 Mortgage Cadence Annual Benchmarking Study are in. This marks the seventh year the company has performed its study on mortgage lender performance. The data, available across a number of critical performance indicators, clearly illustrate the qualities that set the nation’s highest performing lenders apart.

In this short summary we’ll show you what we learned in our most recent study. A deeper analysis is available upon request. In fact, we look forward to visiting with you and showing you where your institution falls in terms of overall industry performance.

History and purpose of study

Mortgage Cadence began looking carefully at lender performance in 2012, just as lenders were beginning to see their mortgage Cost-to-Close increase dramatically. The goal was to uncover the keys to high performance lending. The hope was that the results would indicate that loan origination technology was a key element in the success formula for high performers.

To perform the study, we surveyed a range of lenders that all used Mortgage Cadence loan origination technology to sell home finance loan products to consumers in the US. To rank performance, we collected data that we could use to arrive at five key performance indicators: Velocity, Borrower Share, Pull-Through, Productivity and Cost-to-Close. Where available, we tapped regulatory filings for additional data points to contextualize our KPIs.

The initial study indicated that technology clearly played an important role in the leading lenders’ overall performance, as expected. As a leading technology provider to the mortgage industry, this was the information we were hoping to find. It gave us objective proof that the technology employed by lenders to originate mortgage loans really matters.

But that’s not all we found.

Because our study controlled for technology, we were able to determine the impact of people and process on loan performance. In addition, our study provided baseline lending performance results at an inflection point in mortgage lending history.

While no one could have known for sure at the time, 2012 was the beginning of the end of the refinance era. The refi-boom lasted one more year and then abruptly came to an end.

Seven years later, our ongoing study goes well beyond illustrating technology’s role in mortgage lending. It also reveals the importance of people and process, ultimately enabling lenders to pull the right levers to improve their performance.

What we learned in 2019

As with previous studies, we focused our research on the five critical performance metrics that, together, do a better job of defining high performance lending than anything else we have found. Here’s how the numbers came out, based on survey and research data from participants’ 2018 loan production.

Velocity in 2018 was 64.53, up fairly significantly from the 56.29 days reported in 2017. Remember, this is across all product lines and all channels. (The actual velocity for just purchase loans, for example, is closer to 30 days.) Between 2012 and 2017, Velocity had been trending downward, falling 14% from 68.13 days when we started our research. Velocity had fallen to a low of 54.76 days by 2014.

Lenders gave much of that back in 2018, which we believe was the result of compliance-related delays in an increasingly purchase money driven market as well as housing demand. In today’s market, there are more people who want to buy homes than there are homes to buy, lengthening the pre-approval process because of the supply shortage. The best performing lender in the 2019 study bucked this trend, closing loans, on average, in 32.5 days in 2018.

Lender Pull-Through in 2018 was 48.21%, down slightly from 50.08% in 2017, which is the high-water mark for our study. Up until this year, this metric was rising, though slowly. Here, too, we must consider the macroeconomic factor of housing supply shortage. A lender is not going to close on an application if the borrower never finds a home to purchase, a scenario which is more common when demand continues to outpace housing supply. Only 43.48% applications made it through to the closing table in 2012. This is a critically important metric for lenders to track as a small increase in Pull-Through can have a dramatic impact on Cost-to-Close.

This is another area in which the nation’s most effective lenders are pulling ahead. Our top performing lender this year saw a Pull-Through of an incredible 85.38%. If that seems like too much of an outlier, consider that the next highest was still at an amazing 70.3%.

Borrower Share has historically been a challenge for lenders. When we performed our initial analysis in 2012, lenders were capturing 1.31% of their existing borrowers each year for a new mortgage. By 2017, that share had fallen to just 0.86%. Fast-forward to this year, and not much has changed, with the 2018 average Borrower Share measure at .85%.

This metric shines light on an incredible opportunity for lenders, as customers who already enjoyed a positive experience with the institution are much easier to market to than acquiring a new customer entirely. Even so, the highest performing only worked with 3.29% of its previous customers in 2018.

Productivity has the clearest correlation to the lender’s bottom line profitability. Invariably, the higher this metric is, the more profit the lender will earn. Unfortunately, we saw Productivity fall from 5.36 loans per full time employee working in the mortgage department in 2012 to 3.31 loans in 2017.

But that’s the macro view. A closer inspection of the numbers shows that the big fall was between 2012 and 2014, when Productivity fell nearly 30% to 3.12. Since then, lenders have been slowly improving this metric. By 2018, Productivity for the originators relying on Mortgage Cadence technology was up to 3.33 loans per employee. (As compared to 2.0 loans per employee for MBAs study.)

In all, we saw 76% of Mortgage Cadence clients performing better than the MBA Productivity average. In addition, we saw a number of lenders performing extremely well here, with our top performer closing 10.18 loans per employee per month.

Finally, while the reported Cost-to-Close metric was significantly less in our study than it was in the 2018 Mortgage Bankers Association survey, it was still the highest it’s been since the study began. In 2018, it cost lenders $5,643 to close a loan, more than double the $2,776 they were spending in 2012.

Of course, this is significantly less than the $8,975 MBA members reported in 2018. But some lenders in our study performed even better than that. The lowest Cost-to-Close reported in our 2018 study was $1,043 per loan. In all, 86% of the lenders in our study outperformed the MBA average Cost-to-Close.

For the complete report on the 2018 Benchmark Study, please don’t hesitate to reach out.