There is no loyalty in the mortgage business. If you talk to any experienced broker or loan officer, they’ll tell you this is true … they’ve seen it. You can spend all the time you want with the borrower, get them into the home of their dreams, hit the closing on time and without a hitch, and they’ll still forget you by the time they’re ready for the next loan, especially on the purchase money side.
This makes the concept of the “Customer-for-Life” seem like a poor fit for our industry, at least on the surface. There are some who would argue with you about that and a few others (a much smaller set) who can prove that you’re wrong. It is possible to win the consumer’s loyalty in the mortgage business, but you have to rewire your business to do it.
In this series, we’ll look at a company that is approaching the business in a new way in the hope of changing the way the consumer looks at the mortgage industry and how homeowners think about their trusted financial advisors.
Why we need to crack this code
There are so many reasons the mortgage industry needs to find a way to build loyalty among home loan borrowers. It’s not just that it makes it harder to grow the business. It also costs a lot more to keep the business operating.
How much more? Let’s do a little math …
Conventional business wisdom will tell you that it costs 10 times as much to get a new customer as it does to retain an existing customer. Does that hold up in our business?
We know that about half of the cost-to-close is marketing and sales expense that are spent by the time the customer makes application for a new loan. With the cost to originate a mortgage still above $8,000, that means about $4,000 is spent on the front end for each customer. But for every customer who gets closed, another gets away (pull-through for the average lender is about 50 percent), which means we have to double that cost.
On the other hand, if a loyal borrower realizes they need a new loan and call up the broker, how much has been spent to attract that customer? It’s costing us much more than 10 times to get new customers.
But it’s not just loan origination fees that the lender is losing. Depositories and others that can offer additional financial services will miss out on all that revenue, and you can kiss your referral business good-bye as well.
The industry has so much to gain by figuring out how to get their existing borrowers to come back to them. But, can we really blame them for not doing that?
Why there is no loyalty in the mortgage business
If you ask an old mortgage originator why borrowers never come back, they tell you it’s a frequency of transaction problem. They’re not wrong … that’s just part of it.
It’s incredibly difficult for a broker or loan officer to build a meaningful relationship when their transactions are seven to 10 years apart. It doesn’t matter how good the experience was, over time, the memory will fade. The event will be replaced by savvy advertisers who know how to implant false memories by streaming the right images and sounds via television commercial spot. And there is plenty of competition.
Even if the loan officer uses a service to remind the borrower of the experience on birthdays and holidays, few consumers see these as anything other than the computer-generated annoyances that they must delete out of their e-mail inboxes.
Of course, part of that stems from the fact that regardless of how good the loan officer is, the process of approving a borrower will convince them that to someone up the value chain, they are only a number—or a collection of numbers. No one likes to be treated like a commodity and the loan origination process as it exists today effectively imprints that onto the mind of the borrower.
It comes as no surprise that overall customer satisfaction has been traditionally so low for our industry—although it has been improving of late.
Finally, all too often, the real estate agent is the first to approach a new home borrower and they can effectively steer the consumer to the lender of their choosing. This is happening less frequently these days, as consumers fully embrace the online loan application process. But that brings its own challenges, often delivering the loan to the fastest lender to respond.
Given all of this, should we even be talking about borrower loyalty and customers for life in the mortgage industry? One lender we spoke to recently said that we absolutely should. But it still may not have that much to do with the borrower’s relationship with their loan officer.
The way to win loyalty in the mortgage industry
According to Phil Shoemaker, executive managing director and chief business officer at Home Point Financial
in Ann Arbor, Mich., the key to winning over the customer is in the hands of the mortgage servicer. Shoemaker believes that the servicer is in a better position than the real estate agent to control the new relationship because they’re the first to know when a homeowner is ready to make a move.
Now, Home Point isn’t the first big financial services company with a loan servicing division to think of this. But according to Shoemaker, no other company has yet unlocked the secret to turning the servicer’s relationship into new purchase money loans.
“The reason why other companies aren't doing this is because the industry, as a whole, is wired against it,” Shoemaker said. “The rationale behind the investment in the servicing asset is that the company can use that relationship to drive its consumer direct operation. The problem comes in as a result of the servicer being driven to recapturing that capital outlay. It’s how the industry is wired.”
According to Shoemaker, that means that the servicer will simply turn the relationship over to its call center and start interrupting the borrower during dinner in an attempt to be the first to refinance their loan.
“It’s a very reactive approach,” Shoemaker said. “They’re basically hunting their own borrower. Consumers don’t like it.”
The other problem traditional servicers have is that they don’t work well with originators, even those that are part of their own companies. It’s fine if your call center handles a refinance, but when it comes to a purchase money loan, it seems to break down consistently.
But Shoemaker says it can be done right and the servicers who do so will retain their borrowers longer while meeting their changing needs. To find out how he’s doing it, come back for part two of our series on “Customers for Life.”
Rick Grant is special reports editor for
National Mortgage Professional Magazine and Mortgage News Network. He may be reached by phone at (570) 497-1026 or e-mail [email protected].
This article originally appeared in the January 2020 print edition of National Mortgage Professional Magazine.