By Garth Graham June 2017
The competitive paradigm for the mortgage industry has changed from “a rising tide lifts all boats” high-growth environment during the early years of the last decade to a slower growth market in which winners will be lenders that can “steal share” from their competitors.
Key drivers of slow-growth, some of which are less- than-obvious, include:
1. Unfavorable demographic trends. Faced with an aging population, growth in household formations will slow, with immigration, a powerful contributor to housing and mortgage growth from 1970 through 2008, being something of a wildcard as Congress debates immigration reform.
2. An increasing mismatch between the supply of and demand for housing. An aging population coupled with decreasing family size, slower household income growth and high energy costs all point to smaller, higher-density housing located closer to or integrated with workplaces in order to reduce both commuting time and costs. This is in sharp contrast to the lower-density suburban housing stock sought by baby boomers and their children.
3. Health care costs. Health care cost inflation has far exceeded the general rate of inflation, pushing health care costs to almost 18 percent of GDP (Health care costs were 6.7% of GDP in 1973). Continued high rates of health care cost inflation would push health care costs to 30 percent of GDP by 2030. At that level and given the fact that health care expenditures are largely non-discretionary, consumers will have much less disposable income for housing, education and other core household expenses.
4. Global warming. Models of global warming predict high weather volatility, including both wide and unseasonal temperature fluctuations and increases in natural hazards, e.g., hurricanes, tornedos, torrential rains, etc., that result in flooding and wind damage. Wide temperature fluctuations will increase utility costs whereas increasing exposure to natural hazards will increase property-casualty insurance premiums. Clearly, these increased costs of home-ownership will be a drag on affordability.
Historically, lenders have competed for market share on the basis of price, closing on-time and a willingness to do riskier, harder to originate loans. Today, while price competitiveness is still important, the basis for competition is shifting towards providing borrowers with a superior customer experience.
One reason for this shift is that prospective borrowers, as they shop for a lender, can now easily determine the customer experience provided by a lender through social media and firms such as Zillow. This is really no different than the information available to Amazon customers who, for virtually any product available on Amazon, can compare price, delivery specifications and performance for all sellers offering the product through Amazon.
While Digital Mortgage technology offers the promise of a vastly improved customer experience, it is likely to take several years or more for lenders to adopt Digital Mortgage functionality. And, because Digital Mortgage technology will be available to virtually all lenders from third-party technology providers, it will eventually be less of a differentiator than it is today for early adopters and innovators, e.g., Quicken Loans. But until such time as Digital Mortgage technology defines the customer experience, lenders will need to implement other strategies for improving the customer experience.
The remainder of this article draws upon findings derived from STRATMOR’s MortgageSAT borrower satisfaction program that pinpoint some relatively easy tactics — what I call the Satisfaction Commandments — that can provide significant improvements in overall borrower satisfaction; and, perhaps more importantly, significantly reduce the proportion of highly dissatisfied borrowers who may poison a lender’s well via negative posts to social media and “poor-mouthing” the lender to family and friends.
The satisfaction data backing up each Commandment covers the period January 1, 2016 through mid-June 2017 and represents the responses of roughly 150 thousand borrowers.
When you provide the borrower with a checklist of the information they will need to provide, borrower satisfaction averages a score of 91 out of 100. Borrowers hate it if you come back later with information needs that should have been disclosed up-front. When this occurs, borrower satisfaction plummets to an average score of 52, a poor score that will not earn you favorable references or postings to social media.
Borrowers hate hearing about the closing of their loan at the last minute. Doing so shows no consideration for the borrower’s time and the juggling of their schedule and prior commitments that may be required. When the lender gives the borrower adequate notice of the closing, they are rewarded with an average satisfaction score of 93. When they don’t, satisfaction falls to a low score of 60.
Assembling the documents and other information required by the lender — tax returns, bank statements, etc. — can often be stressful and burdensome for many borrowers. So, it can be extremely annoying when the lender requests a document that the borrower has already provided. “I gave you what you asked for. Why can’t you keep track of things?” is what many borrowers think. And when this occurs, average satisfaction drops from a score of 95 to 77.
Borrowers want their lender to take the lead in keeping them informed about the status of their loan. Whether this is accomplished by email, a text message or by a call from the loan originator or processor makes relatively little difference and results in average satisfaction scores of 90 or higher. But if the borrower has to take the initiative (contact methods connoted by the orange bars), satisfaction is much lower, falling to a score of 60 if the borrower has to call the lender, which often requires leaving a message and waiting for a call-back. While logging into a lender website for status can provide the borrower with immediate status and avoid waiting for a call-back, average satisfaction nonetheless falls to a mediocre score of 83. Clearly, borrowers simply don’t want to have to take the initiative to determine the status of their loan.
Borrowers expect their loans to close within the time frame indicated by the lender. Initially, this is typically the date indicated in the Loan Estimate Disclosure which, for purchase loans, is typically the date anticipated for closing on the home purchase. Closing a loan later than the expected time frame makes borrowers very unhappy and results in a 21-point drop in average satisfaction. While many delays in the closing date may be unavoidable and often not the fault of the lender, what is important is managing borrower expectations.
Roughly one in every five or six loans will experience a problem in the course of origination. Problems with the appraisal, title, verifications or a change in circumstances can all present unanticipated problems that may cause delays, changes in the interest rate and/or the down payment, etc. Sometimes these problems can be resolved to the relative satisfaction of the borrower. When this happens, satisfaction scores come in at 77, not great but not disastrous. It’s when problems cannot be resolved to the borrower’s satisfaction — but the loan still closes — that satisfaction drops like a rock, falling to an average score of an abysmal 35. At this low level of satisfaction, you have a borrower who is potentially a real liability as regards comments on social media and bad recommendations. While in many, perhaps most such cases there may be no way to have resolved the problem, experience has shown that a post-closing call to the borrower from a high- placed lender executive — a call that shows concern about the borrower’s unhappiness — can turn around the situation. While the borrower may remain unhappy about the problem, hostility towards the lender can often be softened or eliminated.
Borrower feel resentful if their closing doesn’t start on time. And why not? The borrower(s) makes an effort to show up for the closing at the appointed time — possibly taking time off from work, hiring a sitter, etc. — and is rewarded by having to wait around until a lawyer or closing person shows up. Such treatment does not make for happy borrowers. When the closing starts late, borrower satisfaction drops from an average score of 92 to 76. While sometimes a late start is unavoidable, in most cases it should never happen. And the price paid by the lender can be high.
By and large, the Satisfaction Commandments cited above are simply common sense and should not come as much of a surprise to anyone. What is surprising, however, is how steep a price lenders pay in terms of borrower satisfaction when they fail one or more Commandments. And in a world where information about the borrower experience provided by a lender is readily accessible to potential borrowers and increasingly important in their choice of a lender, we think that it behooves lenders to be intensely focused on the Commandments. Doing so is part of building a culture of customer service. Insights Report
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