Happy Borrowers: How to achieve them in 2018

Recently, Loan Origination software company Maxwell compiled research on what the best methods of achieving, and measuring, the subsequent financial gain of keeping borrowers happy.  This is not going to be an easy task, as much research shows that the mortgage market is in the midst of a large scale makeover.  Prior to late 2016, interest rates had remained at, or near, historical lows for quite near 32 quarters.  Before that time period, as we know, there was a bounty of ‘subprime’ lending made legal by the government in the late 90’s.  These risky loans short-circuited the economy, as lenders bet on homes appreciating and did not worry about default rate.

These factors came together in 2008 to create the most favorable interest rate environment in modern history.  For the next 8 years, mortgage companies, banks, brokers and lenders of all sorts gorged themselves on the bevy of easy refinances; from IRRRL’s to HARP loans to FHA streamlines, high interest rate borrowers were easy to find and close.  At this point in time, product offerings dwindled and mortgages became highly commoditized.  Slightly lower rates and reduced fees were the key to getting loans in the door.

Winds of change are blowing, however.

Mortgage volume is predicted to drop from this year’s projected ~$1.72 Trillion (Projections from Mortgage Bankers Association) to $1.59 Trillion dollars.  This year’s share of refinances is around 35%, and is expected to drop to about 25%; meaning, obviously, that we are expecting nearly $1.2 Trillion dollars of purchase volume; the highest such total (that I can find on record) since approximately 2000.

According to Maxwell, price/fees are no longer the drivers central to appealing to borrowers.  So what, you may ask, am I to do to get my clients to ‘like’ me?  As a former Loan Officer I know that the number one mistake you can make with a client is taking a ‘transactional’ vs ‘relationship’ approach.  Maxwell’s research shows the same.  Happy borrowers refer more friends and family, and are much more likely to come back to you a second time.  In a market where prices won out over all, the new winners will be those that deliver the best end to end service.

“Okay, I need to improve customer satisfaction.  But it can’t be that bad.  I get lots of loans closed!”

Unfortunately, that is incorrect.  We need only to look at Mobile Banking applications to show just how out of touch (most) mortgage companies are.  Chances are, you have at least one bank’s/financial institution’s app installed on your phone.  I have 4 full disclosure (2 from PNC, one from Capital One, and one from American Express), and I can open all of them with my fingerprint or sliding my thumb about.  

Surveys will show that buyers think the process is relatively antiquated and needs to be improved.  According to studies by NerdWallet, JD Power & Freeandclear, the numbers don’t bode well and cast a spotlight on just how poor the mortgage process has been recently.  About 20% of borrowers reported being unhappy with their lender, and nearly 50% had regrets on how the transaction went.  42% of respondents found the process ‘Stressful’, and a further 32% call it ‘Complicated’.  The most alarming statistic: 75% likened the mortgage lending process to going to the dentist.

Sorry Dr Batistini (and all other Dentists out there).

There is hope for us all, however, and as Maxwell points out, it all starts with the loan officer.  According to consulting firm, PWC, only 10% of borrowers remember positive things about the rate/fee they receive.  Not as high as you likely thought!  However, over 50% remembered the interactions with their loan officer.  With that being said, the loan officer who does a poor job is just as memorable; 50% remember the negative interactions.

Preferences are also predicted to shift slightly from the current methods.  As you can see, less borrowers would like to talk via phone and online in exchange for more in-person interactions.  Further, recent homebuyers are twice as likely to ‘want a digitally-enabled experience’; so aligning oneself (be it as an LO or Broker) with the companies making investments in technology all the more important.  Retaining loan officers will also be a key to success in 2018 and beyond.  Turnover for loan officers is roughly 30% per year, and the average LO is 47 years old with a 3 year tenure.  Attracting and retaining new talent is a must for the industry!

And it isn’t just the environment that needs to be different.  Loan Officer’s tactics need to be as much of a wealth advisor as a mortgage consultant.  High pressure sales, while I don’t believe they were ever the best tactic, continue to be looked down on more than ever.  Borrowers demand that the ‘front line’ of mortgage companies deliver superior service and a customized experience.  PWC’s aforementioned study found that 80% of clients prefer a single point of contact throughout the process.  Repeat: 4 out of 5 borrowers want a single contact.

Besides the loan officer, the next most important factor in determining borrower satisfaction is the ‘Cycle Time’; or Days In Process as I like to call it.  People pay for speed; look at Amazon Prime.  In fact, when PWC asked recent homebuyers what they expect in terms of closing time, they need to close in 30 days or less.  If your company is over that timeframe, you risk jeopardizing the relationship for every day you go over.  This was reported as the most important feature, despite the fact that just 20% of mortgages close in that timeframe (vs low costs, company reputation, multi-channel support and even good reviews!).  In the words of clients, fast and efficient service is a ‘Sign of the best’

Review the below chart showing customer satisfaction vs time in process:

With all of that being said, the reputation of your company is still a very important factor going forward.  FANNIE MAE’s report from October of this year highlighted the fact that personal referrals trump online reviews.  This is not surprising, really, as most people will default to friends, family and trusted advisors in most circumstances.  The report shows that borrowers will ask which lender provides the best service, or who has the shortest closing time.  In an age where seemingly everyone in mortgages is rated “5 Stars” on Zillow and similar sites, we are more reliant than ever on customer service over online sources.

In conclusion, we are entering waters uncharted in nearly 2 decades.  We have never seen a market with this little supply, these types of buyers coming out of an unprecedented financial calamity.  In order to make the most of this, there are 3 important things that all of us should be doing:

• Identifying behaviors and outcomes that create value

This could be keeping track of the ‘Touches’ a loan officer has on a particular file, keeping the number of days in process down by making documents easier to collect, ect

• Tracking outcomes and their value

Once the behaviors identified are tracked, measure their return.  So if you decide that the number of touches should be X, looking into the referrals from one vs the other group should be evident (or the number was not statistically significant as a determining factor)

• Identify disruptive changes to differentiate the company

This is where the company's technology and innovation comes into play.  Let your imagination run wild!

To success in 2018 and beyond!

About:

Andrew Leonardis is an Account Executive with LoanDepot Wholesale focusing on Broker and Correspondent lending, but is also an experienced Loan Officer. Andrew studies, follows and researches economic, financial and mortgage market related topics. Please reach out with any questions/comments on the article, or with any mortgage related scenarios to ALeonardis@loandepot.com or 609.254.4976

--Write up on Maxwell’s report I received 12.6.17.  I did not own or contribute in the application of these studies, nor did I contribute to the authorship or illustration of Maxwell’s document.  All creative rights & intellectual property belong to the groups to which I have attributed them to.  If you liked the data presented, you can reach out to Maxwell at the following link: https://himaxwell.com/?utm_source=PDF_Whitepaper&utm_campaign=Happy_Borrowers

Mortgage Bankers Association Data:

https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary

PriceWaterhouseCooper’s data included via Maxwell’s report

NerdWallet’s data included via Maxwell’s report

JDPower’s data included via Maxwell’s report

Freeandclear’s data included via Maxwell’s report