Stop the Leaks in Your Sales Pipeline

Turning prospects into customers:
How to increase your conversion rate

How many people do you talk with who actually become customers? While no originator converts 100 percent of their sales opportunities, some do far better than others. Some loan originators talk with dozens of people every week, yet at the end of the month, their closed loan results are poor. If there’s one thing that top producers have learned is that strong closing volume every month is the result of effectively managing your leads and your pipeline from start to finish. How do they do it?

When it comes to borrowers, there are three major stages in your sales pipeline, as illustrated below:

Prospects == Applicants == Closings

Prospects to Applicants
The first step in your sales pipeline is moving as many prospects to actual applications as you can. A prospect is identified as someone genuinely interested in home financing and is in a position to take action by either purchasing or refinancing a house now or in the very near future.
At each stage of the sales pipeline there is fallout. Not everyone who contacts you as a prospect will evolve into an application. Some don’t qualify, aren’t ready to take action, are “just looking” or go elsewhere to borrow money. It is not uncommon for many loan originators to convert only about 20 percent of their prospects into applications.

Your job in this first stage is to weed out mere contacts from real prospects as quickly and efficiently as possible. Time spent discussing the intricate details of buying and financing a home with someone who is just window-shopping is often time wasted. The same can be said for hours invested in attempting to help repair someone’s damaged credit or to help them find just the right property. I’m not suggesting you should be rude or unhelpful—I am suggesting that you are a professional mortgage loan originator, not a credit counselor, or a real estate agent. As high performers in our business know, the more time you invest every day in originating good quality loans, the more successful you will be and the more money you will make.

There are some effective “filtering” questions you can ask your prospects at this stage. Questions like: “What is your time frame for moving?” and “If we can lower your payment, are you ready to refinance now?” and “What is your current financial situation?” are great questions to help both you and the prospect decide if your services will be needed. If so, move the prospect forward quickly by recommending the next step of meeting with you, visiting your Web site, or getting pre-qualified or pre-approved to start the mortgage loan application process. Many top producers employ assistants or junior loan officers to take or make these initial contact calls. These assistants are well trained in screening prospects for you, thus freeing up your time to work with real clients as their trusted advisor and home financing expert.

Speed and diligence are critical here. Your skills in convincing a prospect that you have the best home financing solution will make or break your chances of getting him or her to apply with you. Some originators try to set up face-to-face meetings as quickly as possible, knowing that once they get the prospect in their office, they can sell him or her on their financing solution, their service, and their professionalism (and even their charm!). Others like to direct the prospect to their Web site to begin filling out the application right away. As one loan officer recently told me: “If I can get prospects to my Web site and completing the online loan application, I’ve given them the feeling we are already at work on their loan. That way they are less likely to go somewhere else and start all over.” These tactics, as well as things like follow-up letters, e-mails, or a brief phone message let the prospect know that you truly want his or her business and are ready and waiting to serve. At this stage, persistence and follow-up increase your ability to convert prospects to applications. Remember, if this is an interested and qualified prospect, he or she may also be talking with other lenders or might get a referral from a real estate agent to speak with a competing loan officer. They’re not your customer until they actually apply with you.

Applicants to Closings
Step two is moving loan applicants to closings. Unfortunately, not every application closes. Among the number of things that can keep an application from closing are appraisal issues, title problems, failed property inspections, or loss of employment. Some things like these you can’t control or predict. But there are some events that torpedo your potential loans that you can ward off. For example:

  • Get permission to pull the credit report before starting the application. If serious credit issues exist, you know about them before you invest time on an application that will likely never close.
  • Use alternative documentation processing whenever possible. Ask your applicant to bring in their W2s, tax returns, bank statements, and paystubs up-front. This saves time, effort, and surprises down the road.
  • Consider collecting fully applicable but non-refundable application fees. It’s a lot easier for a borrower to walk to another lender if he or she has no money down. Even $200 paid up front can keep your client from straying to the competition.
  • Move quickly! When an applicant feels that nothing is happening on his or her loan and is getting no phone calls or updates, he or she will start talking to other lenders.
  • Make sure your Good Faith Estimate is exactly that. Low-balling your GFE to get clients up-front can cost you a closing when they realize they’ve been bamboozled. Borrowers walk away from closings every day because of this. Make sure they aren’t walking away from yours.

Most loan originators I speak with say they average about a 75 percent conversion rate of applications to closings. That means that three out of four applications in their pipeline fund. Congratulations if your results are better, say 80 or 90 percent. If they are much worse, consider making some distinct changes in your application to closing pipeline process.

The Flow of Business
“Closings are everything!” a successful mortgage broker once told me. “That’s what we get paid for and that’s what the mortgage business is all about. If it doesn’t close, it’s a waste of everyone’s time.” With that good advice in mind, let’s do a little exercise to figure out the flow of business you need in your pipeline to get paid the income you want to earn.

Let’s again assume that you convert 20 percent of your prospects into applicants. Let’s also assume 75 percent of those applications actually close. From there the math is pretty easy.

If you talk with two prospects a day, that’s 10 a week and about 40 a month. If you are successful in converting 20 percent of those prospects into real applications, that yields eight new applications a month. If 75 percent of those applications actually close, you’ll close six deals a month. If you make $1,000 a loan, you can expect to earn $6,000 a month or $72,000 a year. In effect, to earn $72,000 a year you must talk with two people every day.

If earning $72,000 a year isn’t enough for you, then you’ll have to either: a) talk with more prospects every day, or b) improve your conversion rates of prospects to applicants, or c) improve your conversion rate of applications to closings, or d) all of the above. As you increase the amount of prospecting contacts you make every week and work to patch up some of the leaks in your sales pipeline where opportunities fall out, you can improve your monthly closed loan volume and substantially grow your income along with it.