Globally, all eyes are watching President Trump’s next trade moves — specifically tariff policies impacting Mexico and China. On June 7, one of my favorite economists, Elliot Eisenberg (the Bowtie Economist) said that “The widening tariff wars are a double whammy for banks. First, falling interest rates are squeezing the gap between what banks charge borrowers and what they pay depositors, known as net interest margin, which necessarily discourages lending. Moreover, as firms and households get nervous, they borrow less and that reduces loan demand. Not surprisingly, bank shares fell 10% in May as trade tensions with China and Mexico skyrocketed.”
This is a great lead-in to STRATMOR’s June InFocus article. Our Principal, Tom Finnegan, spotlights the on-going “profitability conundrum” of large, bank-owned mortgage companies and describes steps bank lenders can take to reverse some of the trends highlighted in this piece.
Mike Seminari, in his Borrower Experience article, follows this theme with a compelling prescription for banks to break the mold and provide an exception borrower experience.
In both articles, the theme remains consistent with the buzz at conferences and in client’s offices: Winning market share by focusing on an ever-improving borrower experience is the right prescription for success.
We hope you find our perspectives on how to win this game of “Delighting the Borrower” insightful!
By Tom Finnegan June 2019
“The biggest challenge facing banks today is the ability to stay engaged with the customer. Those that do this well will win market share over the next five years.”
—Moorad Choudhry, author of The Principles of Banking
Winning market share in this purchase environment is the name of the game. But this is an expensive commitment; the right investments must be strategically made, coupled with an execution plan that successfully engages with customers on the customers’ terms. More customers generate higher profits, and valid data is the driving force for lenders to make the right strategic decisions to attract and satisfy these customers.
At STRATMOR, our perspectives on the mortgage business are drawn from well-sourced data. We draw on data from our internal data-generating programs such as the Technology Insight Study, Originator Census Study and Compensation Connection, as well as external sources such as HMDA, MBA’s Quarterly Performance Reports, the U.S. Census and Federal Research (FRED) databases, to name a few. STRATMOR has also collaborated with the MBA in conducting the PGR: MBA and STRATMOR Peer Group Roundtables Program since 1998.
This spring we conducted seven PGR meetings with the MBA that included 100 or so participating lenders. The largest originators by volume are, as a group, the large banks — those that close more than $5 billion per year in mortgages and which averaged $12 billion in Retail mortgage production in 2018. MBA, STRATMOR and the participating lender executives sat together and reviewed varying results as determined by each group. However, the trends we noted in our large bank group were consistent with what STRATMOR has found across many of our large bank clients — low revenues, high expenses and trend lines that are moving in the wrong direction.
Why do many independent mortgage bankers (IMBs) beat large banks when it comes to satisfying their borrowers? The ability to delight customers is more directly tied to revenue than many lenders think.
STRATMOR believes lenders can stabilize in the current environment and build a scalable foundation for future growth by focusing on three objectives: optimize the borrower experience, renegotiate long-term contracts and evaluate compensation plans.
There’s no doubt about it: consolidation in the industry is increasing. Sr. Partner Jim Cameron reports on the big jump in M&A activity from 2016 to 2018, the indicators signaling a down cycle and strategies for lenders in this challenging market.
Senior Partner Garth Graham lays out seven common-sense rules for achieving mortgage borrower satisfaction.