Not long ago, getting a mortgage almost inevitably entailed visiting a handful of dedicated mortgage providers. But in the last few years the market has opened considerably—a boon for consumer choice but a minus for customer engagement.
It doesn’t have to be that way.
Before we look at how better engagement might happen, it’s important to trace how this issue arose for mortgage providers in the first place.
The banking crisis, before and after
The 2008 financial crisis lies at the heart of the mortgage industry’s struggles with customer retention and communication. In 2011, 50 percent of all new mortgage money came from the three biggest U.S. banks: JPMorgan Chase, Bank of America and Wells Fargo. But by September 2016, their share of loans plummeted to 21 percent.
That drop largely came about from the subprime mortgage crisis, which sparked the Great Recession in 2007-2009. This nationwide banking state of emergency inspired new regulations that placed increased obligations on lenders—rendering mortgage products less profitable for major banks.
This opened the space for non-bank lenders. These financial institutions typically offer a range of loan products without deposit, savings or checking accounts. Non-bank lenders offer highly competitive terms to consumers, making margins tight and customer service budgets even tighter.
Customer service hits the skids
While these non-traditional lenders dominate the market—in 2016, six out of the top 10 lenders were non-bank mortgage providers—tighter customer service budgets come at a cost.
With less money allocated to customer service comes dwindling customer satisfaction—which in turn, affects customer retention rates. In fact, data from J.D. Power shows that 63 percent of customers would leave their mortgage servicer for better customer service. The same study shows that 27 percent of first-time buyers and 21 percent of all borrowers regret their choice of lender; one of the most common reasons centers on lack of communication.
Small wonder, then, that nearly 40 percent of lenders expected their profits to fall in 2017.
Of course, operating in tight margins isn’t the only reason lenders struggle with customer service. Consider the common practice of selling mortgage books from one lender to another. There is paperwork exchanged when the switch happens, but often the communication before and after falls short, leaving customers confused and anxious.
It’s also worth noting that many mortgage providers seem to have missed the digital wave and don’t yet offer the range of digital channels customers can access from other financial service providers.
Based on customer experiences of digital banking and electronic payments in other industries, it’s entirely plausible to expect that one could make mortgage payments from a mobile phone. Yet not many mortgage lenders provide mobile apps. Some providers even fail to optimize their websites for mobile viewing.
Customer communication spending in lending
Given all this, a clear case exists for lenders of all sizes to allocate increased budget to customer communication. This becomes clearer when you examine how differently customers of traditional mortgage providers feel compared to their counterparts who use non-traditional lenders.
Looking back at four years of J.D. Power data, customer satisfaction scores for bank lenders exceed non-bank lenders, and mostly surpass industry averages (with the exception of 2014). The inverse is true for non-bank lenders' scores: Other than in 2014, their scores consistently fall short of bank lenders' scores and industry averages.
From this, one could deduce that as non-banks’ mortgage money market share grew, so too did customer dissatisfaction. Mortgage servicers therefore need to grasp that improving customer satisfaction equals cost reduction strategy.
Again: Lack of communication is the top driver of customer dissatisfaction. Servicers need to speak to consumers in layman’s terms and through their channels of choice. Improving digital self-service channels not only reduces costs and enhances customer experience: It also significantly reduces customer complaints and limits churn.
The happen stance
So how can lenders make this happen? The first crucial thing to remember is that engaging in regular communication provides the customer with needed, timely information via the channel of their choice.
And in an industry lacking customer service leadership, excellent service that outshines the rest is easy to achieve. Let’s take email for example. Several strategies can make it much simpler to promote customer satisfaction and loyalty:
- A monthly or quarterly statement presents a regular opportunity to provide information, answer FAQs and open a digital dialogue with the customer.
- A solid onboarding program can set appropriate expectations, clarify service channels and build dialogue.
- Regular email communication can provide highly relevant, personalized information to the customer, such as how making one extra payment can reduce principal debt and loan term by X percent.
- Regular triggered communication, such as “happy anniversary” notes, reinforce the customer relationship.
- Newsletters that offer a layman’s interpretation of financial market impacts will position the lender as a leader and comfort the customer that their loan rests in good hands.
The right technology partner can help further optimize these communications, increasing not just their value but also email open rates and fruitful interactions.
The power of trust
Regular, relevant communication builds credibility and trust. Remember: Mortgage providers deal with people’s money and fund their homes. Those that build trust are more likely to retain long-term customers. For in the final analysis, those who make it financially possible for excited clients to obtain coveted houses should be the first to grasp the importance of a solid foundation.
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Mia Papanicolaou, COO, heads up North, Central and South American operations for Striata, which provides strategy, software and professional services that enable digital communication across multiple channels and devices.
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