Lenders rely on the performance of their loan originators in order to maintain and maximize profitability, and to plan and execute their hedging strategies. The industry-standard metric commonly used to grade performance is the “top-line” pull-through, which looks at the rate in which an originator brings a locked loan to closure.
What’s missed when looking at this metric are the many variables potentially impacting the profitability of individual loans that can occur between the time a loan is locked and when the loan is closed. These dings can come in the form of extension fees, concessions, renegotiations or other touches that result in loss of profitability.
As we all know, a lock that was converted to a closed loan is only one piece of the profitability puzzle: that loan might have generated a lower profit than originally expected due to extensions and concessions. Free extensions, interest rate concessions and other un-charged renegotiations reduce overall profitability despite increasing production.
In order to drive profitable production, lenders should also be looking at how well original profit margin estimates are preserved. Through this analysis, lenders can gain better quality insight to their most profitable originators and identify areas of improvement.
Compass Analytics, part of Black Knight, has developed an innovative tool to help lenders measure this more detailed metric — the Compass Originator ScorecardSM.
In addition to calculating the top-line pull-through rate of loan officers (LOs), brokers or branches, Originator Scorecard takes into account the amount of loans that were impacted by the various forms of profit margin loss. The tool then calculates a “clean” pull-through rate that represents the percentage of closed loans that maintained their original profit estimate.
Lenders can leverage the tool to analyze how potential profit margin was lost — be it fallout, extensions, renegotiations or something else — and calculate an overall hedge cost for each originator.
The Originator Scorecard takes this hedge cost, along with the top-line and clean pull-through rates, to rank how a lender’s network of originators stack up against each other. Furthermore, it provides benchmarking on how individual originators compare to Compass’s anonymized database of LOs, brokers and branches. It also features a peer scoring metric to help lenders better understand their producers, providing an opportunity to facilitate conversations focused on growth and educate originators on potential areas of improvement.
The Originator Scorecard is presented as an intuitive report available through an extension of the industry-leading risk management and loan sale platform CompassPointSM. Through this insight, the Originator Scorecard can help lenders identify their most profitable originators and drive more profitable production, by reducing the number of manual touchpoints on their loans.
To learn strategies about how to optimize your profit margins using the Compass Originator Scorecard, contact a Black Knight representative today.