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The UFA Default Risk Index: Waiting for slack tide

National Mortgage Professional
Nov 15, 2005

Thanks for everything--you're fired!David SatterleeCustomer loyalty,mortgages,customer referrals It recently occurred to me that effectively maintaining relationships with borrowers after settlement is a lot like flossing your teeth: everyone agrees it's something they should do, but few actually do it. And those who do, frequently don't do it very well. Despite everyone's best intentions, the all-too-typical frenzy of searching for new borrowers and working on loans in process usually results in customer relationship management (CRM) being pushed to the bottom of the priority list (if it was ever on the list in the first place). Each year, many lenders spend a small fortune on the alchemy of turning strangers into customers, but almost nothing on maintaining their relationships with the very people who know first-hand just what they can do for them--their own past customers. Few would argue that a past customer is a far better sales prospect than a stranger. Which would you rather have waiting in your lobby as you sit at your desk, reaching for a blank 1003: 10 strangers or 10 past customers brimming with first-hand knowledge of your skill and dedication to meeting their needs? Where is the logic in continually searching for new borrowers to replace the ones you've just settled, while ignoring the ones you've already served? Is a commission from your borrower's second deal any less bankable than a commission from the first? The more business you derive from past customers, the less pounding the pavement and lead-purchasing you'll have to do in order to simply maintain the status quo or take your business to the next level. The days of a 30-year mortgage actually lasting 30 years are long gone. Today, borrowers are re-entering the marketplace sooner than ever before. Borrowers who used adjustable-rate mortgages (ARMs) to purchase their homes soon find themselves tiring of interest rate adjustments that seem only to go in one direction. But they're not the only ones coming back for more. Ever-increasing property values continually sing a siren song of cashing out and of tapping home equity for a limitless number of uses. And let's not forget about rate/term refinances and purchase transactions. We're seeing plenty of both, as interest rates fluctuate and buyers house-hop with increasing frequency. But, it's more than just repeat business. Very few consumers exist in a vacuum. Most have friends and family that will, at some time, need mortgage financing. Studies show that when it comes to big-ticket purchases like cars and homes, people aren't bashful about asking those closest to them for advice, especially first-time buyers. Barring any catastrophic customer service meltdowns (which, by the way, is your opportunity to shine as the hero who saves the day), is there any reason to think that your own past customers shouldn't recommend you when the opportunity arises? The good, the bad and the ugly Several years ago, a study was conducted with 5,000 mortgage borrowers, over a three-year time period after settlement. The results of the survey were good, bad and ugly (my apologies to Sergio Leone): The good: About 90 percent of those surveyed rated themselves as "very satisfied" with the service they'd received, enough so that they'd return to their lender the next time they were in the market, and would even refer their lender to friends and family. Even better, 2,831 (56 percent) of those surveyed had already either purchased another property or refinanced their existing mortgage, after only three years. The bad: Of those same 5,000 borrowers surveyed, 700 couldn't remember their loan officer's name only six months after settlement. That number doubled after another six months and went through the roof to 3,350 just 12 months later. The ugly: Out of the 2,831 transactions referenced above, 1,884 borrowers (about 67 percent) went elsewhere for their next deal. In essence, they said, "Thanks for everything ... you're fired!" (My apologies to Donald Trump.) So, what happened? Three percent of those surveyed simply moved out of their lender's marketing area. Six percent of them went elsewhere, due to what they perceived as having received poor service (and, unfortunately, folks, their perceptions are your reality). Seven percent of them didn't return because their loan officer had left the industry or their lender had folded up shop. The most overwhelming reason that was given for not returning--66 percent--was simply due to their having lost contact with their original lenders! It turns out that borrowers don't stop doing business; they just stop doing business with you, even "very satisfied" ones--that is, unless you have a plan to keep them. Stop the bleeding Without a sound CRM plan, most of your past borrowers are nothing more to you than your competitor's future borrowers. The more business you close without one, the more potential business you're hemorrhaging away to your competitors who are quite happy to take over in your absence. One thing that most top-notch lenders have in common is that they not only recognize the importance of effective CRM, they actually do something about it on a consistent, universal basis. In other words, they "get it." Where most lenders rely on mere hope to secure repeat and referral business, those who "get it" realize that while hope may be a wonderful thing, it sure does make for a lousy sales strategy. In terms of customer loyalty, earning a borrower's second deal is much more important than obtaining their first. By the time they've returned for their second deal, they've begun to establish a pattern of coming to you for their mortgage financing needs. Thus, they're not only more likely to continue doing so, but to think of you during Thanksgiving dinner when they overhear Uncle Harry mention that he may take out a home loan to send Cousin Billy to dental school next year. Your goal is simple: to get as many of your borrowers as possible to think of you exactly as they think of their doctor or dentist. What do I mean? When you're sick, what do you do? Do you run to the Internet or the phone book to find a doctor? Probably not--you call your doctor. Same thing when you have a toothache. At the very least, if you don't have a doctor or dentist, you would likely ask someone you trust for a recommendation. The idea is for your borrowers to think of you as their mortgage lender, not just any mortgage lender. What would the impact have been on your production, profits or commissions last year, if just a few more of your borrowers thought of you like that? Now, don't get me wrong. Of course it's important to seek out new customers and to establish name recognition and brand awareness. But, to do so to the exclusion of your existing base of past customers is short-sighted and detrimental to long-term growth. All things being equal, it costs much more to secure a borrower's first deal than to win their second. Why? Because past customers already know who you are! The name recognition, brand awareness and (hopefully) trust already exist. Keeping in touch properly requires a much smaller investment than running ads in trade publications, renting billboards, schmoozing real estate agents, placing ads in the phone book, advertising on TV or radio, etc. Rather than put all of their marketing eggs into one basket, those who "get it" dedicate a relatively small portion of their marketing budget to CRM. Effective CRM should ultimately increase profits, not expenses, and is almost always most effective when kept simple. KIPS--Keep it personal, stupid! You've heard of KISS--Keep it simple, stupid? In terms of CRM, it could just as well be KIPS--Keep it personal, stupid! Not all marketing is alike. You'll want to market yourself to your past customers differently than you do to the general public. For example, try to resist the temptation to slap your picture or logo on everything you send to your past customers. While doing so can be an important part of establishing brand identity and name recognition with the public at large, doing so with a past customer risks coming off as "salesy" and impersonal. Remember, your past customers already know who you are and (for better or for worse) often know what you look like. Do you include your picture every time you send Uncle Harry or Cousin Billy a birthday card? Reach out as a friend or trusted advisor in search of an additional opportunity to serve, not as a wolf in search of a pig in a house of straw. Customer satisfaction: Starting gate or finish line? Perhaps the single most important aspect of CRM is terrific, memorable service. You could reach out to your customers once a month, every month, from now until the end of time, and you probably won't get a single repeat or referral deal for your efforts if you didn't first provide superb service. Companies today are falling all over themselves, trying to keep their customers satisfied, when all that really matters is whether or not their customers will be loyal. In the words of noted sales authority and author, Jeffrey Gitomer, "Customer satisfaction is worthless. Customer loyalty is priceless." Far too often, customer satisfaction is viewed as the finish line when it's really the starting gate. Customer satisfaction is the first step in customer loyalty, not the last. Without it, most customers won't return. With it, some might. To me, customer satisfaction means that a customer's minimally acceptable expectations were met and that no one died in the process. Satisfied, sufficient, mediocre ... that's probably not how you want your borrowers thinking of you. The sad truth is that most "very satisfied" customers are nothing more than "very indifferent" about doing business with you again. Today, customers expect to be satisfied. You don't get points for doing what they expected you to do in the first place. There's nothing exceptional or memorable about simply meeting someone's expectations. Exceeding expectations is what gets you remembered and talked about. Ready, set, retain! Assuming that you're already treating all of your customers as if they were your grandmother, let's focus on the CRM process itself. Make it universal Include all of your customers in your program, even the ones you don't like; is their money any less green than anyone else's? Don't fall into the trap of trying to pick and choose who might be worth including, as if you have a clue as to who may or may not end up returning or sending you a referral. Too often, people will try to nickel and dime their way out of having to include everyone in their program, but doing so is penny-wise and dollar-foolish. The few dollars you will save by not including a borrower is insignificant, compared to the profit to be earned from future business and referrals. Mix it up Make it a point to vary the media in your CRM program, so that it has a fighting chance of being opened. Letters, greeting cards, newsletters, postcards--the possibilities are endless. Measure the results If you can't determine, with a reasonable degree of accuracy, how effective your program is, you won't be able to determine what's working and what's not. More importantly, you won't be able to measure your return on investment. Make it easy Make it easier for your borrowers to reach you than to reach any other lender--period. Include a self-addressed, postage-paid reply piece with everything you send. Be sure to include every way possible for you to be reached (e-mail, Web site, cell phone, fax, address, etc.). Beauty is in the eye of the beholder It's not how pretty your pieces are, but how professional they appear to be. What's important is that it doesn't appear to be something that you just tore off of your inkjet and crammed into an ink-smudged envelope. Concentrate on quality, not simply aesthetics. If what you're about to send doesn't scream "quality," then don't send it. Personal versus "salesy" I've yet to meet anyone who's told me how much he hates being treated as an individual. People like to be treated like people, not prospects. Keep your pieces simple and personal, rather than slick, "salesy" and glitzy. Which would you rather receive? The warm, fuzzy thank you Cookies, brownies, flowers and fruit baskets are all wonderful, and I'm sure that borrowers love them. Just remember that fruit baskets won't do much to make your phone ring 54 months after settlement, when it comes time for your borrower to refinance or tap some equity. Beware of relying exclusively on warm, fuzzy, thank-you gifts to try to earn your customers' loyalty. The perfect thank-you gift should be both useful and of enough value to the borrower that it will be kept. Discount cards for future services have been shown to be particularly valuable, especially if they include your contact information. You don't have to go it alone Many companies try to implement CRM programs in-house. While this allows an unparalleled degree of control and flexibility, program implementation and maintenance can be expensive and time-consuming. Similarly, many top producers will delegate their CRM programs to personal assistants, resulting in the same benefits and drawbacks. Another option is to outsource the program to a company that can give the program the attention it deserves, and if the CRM company can also manage the customer responses and the leads their programs generate (as opposed to simply sending out mailings), then there will be even less for you to do. Invest in yourself It's not uncommon for those who "get it" to earmark a certain portion or percentage of each deal for marketing. When it comes to marketing to past customers, just remember that there's only one reason to do so--to increase profits, not expenses. The best plans are the ones that are simple and affordable, so as to provide an excellent ROI (another reason to make sure you can measure the results). Why the tortoise won the race If you implement a CRM plan on Monday, with visions of your phones ringing off the hook by Thursday, then you're living in a fantasyland. CRM is a long-term endeavor, not a quick fix. The probability of your borrower re-entering the market is inversely proportionate to the length of time since settlement. Be sure to stay in touch long enough to increase your chances of getting his next deal. Ask and you shall receive Ask for referrals in all of your mailings. You don't need to be pushy about it; just remind your borrower that you'd value the opportunity to serve his friends and family, just as you served him. Surveys ... have mercy! Satisfaction surveys are important; there's no doubt about it. But, despite all the talk about the "paperless society," somewhere, a tree falls every time a mortgage settles. The last thing your borrowers want at settlement is one more piece of paper to contend with. What's the solution? At settlement, let them know that a short satisfaction survey (two pages, tops) will soon be arriving in the mail. Impress upon them that the surveys are taken very seriously and let them know how much it would mean to you, personally, if they would answer it honestly and send it back. For a real eye opener, try including the following question on your survey: "What was the most memorable aspect of your experience with us?" The Goldilocks principle One lender reached out to his customers too often. The other lender didn't reach out often enough. The key is to reach out often enough to be in the right place at the right time, but not so much that you become a pest. Usually, a mailing every few months and the occasional "I-was-just-thinking-about-you" phone call will suffice. You can also call to thank them for their wonderful surveys and ask if they'll allow you to share them with others as testimonials (hint, hint). Don't forget your "other" customers Most top lenders have two sets of customers: borrowers and referral sources (usually real estate agents, financial advisors, CPAs, etc.). A good CRM program focuses on both. Remember to thank your referral sources for every deal, and keep in touch to help maintain your relationships. Enjoy a competitive advantage over your competitors by letting them know that your CRM program will put you in a prime position to refer business back to them, for a change. While you'll never turn every customer into a customer for life, with a little thought and a small investment in yourself, there's no reason why most of your hard-won borrowers shouldn't think of you first, the next time they're thinking about mortgage financing. You can be sure that if you're not staying in front of your borrowers, someone else is. David Satterlee is the Atlantic marketing advisor for Continuity Programs Inc. He can be contacted at (800) 251-3874 or e-mail [email protected]
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