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How Can Lenders Thrive in a Post-Meltdown Mortgage World?


I’ve been binge-watching the final season of The Walking Dead lately and thinking about the crossroads at which the show’s characters find themselves season after season — the question of “What next?” After surviving another battle, another near-famine, or any number of other life-threatening conditions, they have to look inside, muster whatever resilience is left in them, and say, “How can we rebuild? How can we improve? What are the small steps we can start with today?” It’s not merely the drive to survive, but to thrive, that gives the show its heart. Hope for a better tomorrow is the fuel keeps the people going.

After a year of mass layoffs and a 70 percent drop in loan volume, many in the mortgage industry are just happy to have survived. But the close of 2022 was only the end of a season, not the end of the story, so we’re left with the same quandary, “What next?” Our question this month: What first steps can lenders take toward thriving in a post-meltdown mortgage world in 2023?

Thriving in a Post-Meltdown Mortgage World

Even if you’re fortunate enough to have survived the layoffs and the drastic drop off in loan volume so far, you’ve undoubtedly still experienced some pain along the way. Let me be the first to commend you for your grit and staying power. It’s been a feast or famine environment over the past two years, and no matter how many warnings we heard about the low rates inevitably going away and no matter how many rate cycles we’ve lived through, it’s no fun when you find yourself in the middle of the “famine” stage.

While most senior executives have managed their way through multiple downturns in the mortgage business, the universal sentiment is that “this one feels different.” That’s because it IS different! The severity and speed of this downturn caught even the most hawkish forecasters by surprise. As Jim Cameron notes in his recent STRATMOR Insights article, “What’s Different About This Downturn?” “We have an unprecedented amount of excess capacity, and many lenders will need to sell or they simply won’t survive.”

During the boom of 2021, the main concern with the loan process was how fast we could push loans through the funnel. Less time and personal attention were spent on each loan. The need for speed also meant hiring sprees and reallocating internal resources, which created holes in the walls of the process due to lack of proper training and employee burn out.

With the volume drop in 2022, there was a general lender expectation that those holes would fix themselves. However, mass layoffs and customers whose baseline satisfaction was being tinged by rising rates made the holes bigger. In 2023, originators are fighting for every deal, and lenders need a way to differentiate themselves in cost-effective ways (i.e., not with pricing concessions and buydowns). Excellence in the customer experience will be a huge competitive advantage for those willing to pursue it.

Diagnosis

After one particularly catastrophic event in The Walking Dead, the community leaders met to talk about how to take the first steps forward. One group was tasked with finding weak or broken sections of the walls around the city, another group was tasked with repairing those sections and a third group was tasked with monitoring the walls to prevent future breaches. Perhaps we can adopt a similar strategy in the mortgage industry.

Finding the Damage
The first step in any journey to rebuild is to assess the current situation, and while damage to the loan process might not be an exact parallel to damage done by brain-eating zombies, it does still represent an existential threat. According to STRATMOR data, nearly nine in ten borrowers choose their lender based on a relationship, whether it be a referral from a friend or real estate agent or because of an existing relationship with the lender or loan officer. If that advocacy and loyalty goes away, so do all the loans.

To find the weak or broken sections of your loan process, there are three effective strategies you can pursue, ideally in parallel:

  1. Journey Mapping — Create internal dialogue around employee pain points and employee perception of customer pain points. STRATMOR can help walk you through this exercise if you’d like guidance.
  2. Secret Shopping — Simulate a customer journey from the search phase up to pre-approval. Understand from a third-party perspective what the customer thinks and feels during the early stages of the process, focusing primarily on the shopping and application experience. STRATMOR provides this service as well.
  3. Customer Feedback Collection — Secret shopping will only cover the period up to the pre-approval, so if you’re aiming to find weaknesses in the document collection, pre-closing and closing phases of the loan journey, you’ll also need a robust post-close survey. Don’t be afraid to ask a healthy number of questions. About one in every three borrowers who just finished the highly stressful and often highly emotional journey of securing a mortgage loan are more than willing to give three to five minutes of their time to provide feedback. And 93 percent finish what they started.

Repairing  
One of my favorite lines from the movie, “The Usual Suspects” is, “The greatest trick the devil ever played was convincing the world that he did not exist.” I think of that line every time I speak with originators who say, “My customers love me. Why should I be concerned with what happens behind the scenes of the loan process?” If you can’t see it, it doesn’t exist, right?

Wrong. This leads me to another popular quote, “The devil is in the details.” According to STRATMOR data, nearly one in every five borrowers experiences a problem during their loan process and in those cases, the average drop in Net Promoter Score (NPS), which measures advocacy, is 75 points. In essence, that takes a sure-fire raving fan and turns them into someone more likely to badmouth your organization. For the originator, that’s real money leaving their pockets.

Elite originators understand that they need to monitor the loan process closely if they hope to preserve and protect their potential referrals. At the same time, they don’t want another dashboard or another website to log into. To solve for this, you can provide them visibility by way of pushed reporting. And that pushed reporting will ideally give them blueprints for repairing the damage (i.e., a path to improvement) each month. If you’re interested in this strategy, contact me for a consultation.

Monitoring 
How do you make sure the “holes in the walls” don’t return? I’ll tell you this much: No corporate vision-casting or training webinars or town hall meetings will, on their own, create the buy-in needed for long-term change. You must put the power in the hands of the people, starting with your originators.

Originators need a compelling “why” if they’re to care about customer experience (and the loan process, specifically) in a way that changes their habits and their behaviors. Give them scorecard reporting that provides recognition via performance badges, competition via company and national rankings, and a path to improvement through comparison with internal and external peers. Make it short and sweet, so it only takes 30 seconds to read each month. If you need help with this, STRATMOR’s MortgageCX program has you covered.

Prescription

Here are three immediate actions you can take to thrive in post-meltdown 2023 mortgage industry:

  1. Find Your “Square One”: Every new journey needs a starting point. Even a GPS won’t do you any good if it doesn’t know your current location. Gather data to determine your baseline and commit to a data-driven plan for improving your customer experience. This may mean calling STRATMOR for help with journey mapping, secret shopping or help designing a deeply insightful customer survey.
  2. Provide Visibility for LOs: When I tell originators that there are seven things that happen in the loan process that will make or break a referral, the first thing they want to know is, “What are they?” The second is, “How can I have visibility of these things so I’m not losing referrals?” Make sure your LOs are seeing results from each and every survey that comes back from one of their borrowers and make sure your survey is covering each of “The Seven Commandments for Optimizing the Customer Experience.”
  3. Consider Cost-Neutral Replacement: You most likely have a survey program, whether in-house or third-party. Is it providing you deep insights into your processes and a path to improvement for your people? What about scorecarding? Peer lender comparison? Reputation management tools? Whatever it’s costing you, consider how that cost might be reallocated to a program like MortgageCX that does all of these things.

How can you learn more about creating a better customer experience and about how the customer experience impacts your company?

Find out more about STRATMOR Group’s MortgageCX program and how transparency into the loan process can help your company. Contact Mike Seminari at mike.seminari@stratmorgroup.com.

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