The UFA Default Risk Index: Waiting for slack tide

The UFA Default Risk Index: Waiting for slack tide

November 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
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
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
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
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
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
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
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
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
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