Let's face it. Most people are intimidated by the whole mortgage application and closing process. Not only can it be overwhelming for borrowers, there is also nothing fun about disclosing your personal financial and credit information either. At best, many view it as a necessary evil to getting a new home or refinancing their existing home.
The issue of consumer frustration with the closing process is once again driving HUD to consider another RESPA reform proposal. According to a study done by CFI Group USA, consumers are most frustrating by the lack of control they feel, and the inability to shop fees and closing costs across lenders. HUD Secretary Alphonso Jackson asserts that American consumers spend approximately $55 billion each year on closing costs they don't fully understand.
While consumer and industry groups debate how best to move forward, what can we do to help borrowers navigate the process?
Consider this: Borrowers who have just an average experience with their closing aren't going to turn around and rave about you to others. To get their recommendation and to earn their future business, you need to ensure that they remember their closing as transparent, pleasant and hurdle-free.
How high are the stakes for your long-term business when the closing process does not go smoothly? Let's say the closing gets botched due to poor communication or unexpected fees. According to research done by the Ken Blanchard Companies, 100 percent of unhappy customers will tell at least nine others about their dissatisfaction, 96 percent won't complain about poor service, and 90 percent won't return.
Clearly, it's in everyone's best interest to make closings as free from aggravation and surprises as possible. You not only want a satisfied, repeat customer, you want positive referrals. Your best weapon for keeping loans from falling apart and maintaining a favorable reputation is not legislation; its good, old-fashioned communication.
Communication is key
One of the most common (and easily avoidable) pitfalls in the closing process is that loan officers simply fail to communicate basic details of the transaction, and the buyer ends up caught unaware.
It's true that some buyers still won't pay any attention to their documents until they reach the closing table. However, if a loan officer is savvy and wants to avoid do-overs, he will keep a steady line of communication going. Sending an informed borrower to the table who understands the terms and timetables of the loan, makes for a happy borrower, a happy loan officer and a happy lender.
It may seem basic, but addressing realistic expectations up front can prevent a lot of heartburn at closing.
In the worst scenario, a borrower applies for a loan, but the loan officer supplies only minimal information or fails to fully disclose and/or adequately explain basic terms such as PMI, or fixed versus adjustable rates. The borrower then has false expectations about the costs or terms of the loan and probably signs documents he doesn't fully understand. At closing time, the borrower is shocked when presented with the final package, and the loan either dies or has to be rewritten.
Contrast that with the best scenario, where the loan officer presents a variety of loan programs for the borrower to choose from initially. He lays out the related documents, disclosures and expenses, so that the borrower can make an educated decision about which loan option is best. Subsequently, there are no secrets and the borrower gets exactly what he expected at the closing table.
The process is significantly more seamless, and ultimately serves to strengthen the relationship between loan officers and their borrowers.
Accuracy vs. quantity
There is also a difference in the philosophical approach some loan officers take toward closings. Keeping the process simple and streamlined for buyers is good. Keeping the borrower in the dark, however, is not a good practice.
Some loan officers feel that the less information they give to borrowers, the more likely that borrower is to stay with them. However, this kind of "don't worry about it" approach can result in spontaneous or last-minute decisions that are often made under pressure, and can cause a plethora of problems at closing.
The question to honestly ponder in our industry is whether we should gauge our success on the volume of loans we close, or on the number of subsequent referrals each loan generates instead.
In my opinion, accuracy and by extension, referrals always wins out over quantity. We all need to periodically stop and examine what we are promoting, writing and closing, to ensure that quality and the experience of the buyer doesn't suffer.
In closing ...
Unfortunately, there will always be a certain number of unavoidable obstacles that rear their ugly head at the closing table, like title issues and battling spouses. But with a few proactive, common sense steps, we can avoid closing horror stories and minimize those last-minute surprises that upset buyers and can ultimately kill a deal.
RESPA reform initiatives aside, if we want to contribute to a harmonious closing process and avoid unnecessary strain between consumers, loan officers and lenders, we need to be diligent about maintaining open communication and setting expectations, right out of the gate. It's the best way to raise the profile of our industry and improve the image we have as mortgage brokers and lenders in the hearts and minds of our customers.