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Solving the mortgage retention crisis

New lending technology can help financial institutions work more effectively and keep a better grip on their customers.

Dec 9, 2022 / Consumer Banking

Each spring, mortgage payoffs swell as the homebuying season ramps up. It’s not alarming because it’s expected—borrowers pay off mortgages when they buy new homes. But what should concern banking leaders is that fewer than three in 10 customers will return to them for their next mortgage.

These numbers should concern lenders even more than the decline in mortgage volume projected for the year ahead because repeat business is the single best way to grow a mortgage business. A lost borrower means more than just one lost mortgage. Depending on location, a lender that loses a borrower after a first home purchase could be missing out on three to five more originations during that borrower’s lifetime.

Bank leaders should consider the net effect of lost mortgages as well. These missed loans have both a relationship cost and an opportunity cost. They open the door for other institutions to court consumers for the rest of their needs, and some competitors are becoming far better at transitioning mortgage borrowers into banking customers.

To buttress mortgage originations, mortgage lenders must encourage repeat business from past customers and develop depositors into mortgage borrowers. To do that, they must examine their offerings from the customer’s viewpoint. What will borrowers try to accomplish over the next couple of years?

Banks currently possess the most important piece of customer data: home addresses. By accessing multiple listing services, financial institutions can identify every customer with a likely need for a mortgage. With the right technology, staff can also engage quickly and with the right information.

Real estate agents are the first point of contact, and they refer clients to lenders they trust.

Price range is a key part of an agent’s search parameters. When consumers are ready to find out how much house they can afford, they start shopping lenders. And applying for credit helps the consumer answer questions about desired price range. Technology available today allows lenders to learn of this mortgage need, whether it’s to purchase a home or to access home equity.

Lenders should engage customers who have tappable equity because consumers need education on their options now. Rates affect home affordability and prices, and consumers know the window is closing on the chance to use their equity for renovations, debt consolidation or surprise expenses.

The home equity of consumers who’ve just sold or purchased a home represents both a revenue and relationship opportunity for a bank. The National Association of Home Builders found that customers who buy a new home are more than 2.6 times more likely than consumers who did not move to make large purchases within a year of their purchase—for items like appliances, furniture and home improvements. Homeowners need to know that their bank can help them with these purchases.

Hundreds of mortgage originations await in consumers’ banking data. Using that data to serve pressing financial needs will contribute to the performance of profit leaders in mortgage and banking in the years ahead.

For every 50,000 contacts monitored in a mortgage or banking database, lenders discover nearly 200 additional mortgages per year, according to lender data gathered by Total Expert. That level of increase in loan originations can translate to nearly $1 million in revenue growth.

Lenders should also consider how technology reduces overhead such as marketing costs. Mortgage leads can cost upwards of $1,000 per loan. For 200 new originations acquired by a lending technology, most of that cost is saved. Such savings scaled across a larger contact database—especially one that combines a bank’s mortgage and retail customers—can spur top-line growth and higher profitability.

With such significant opportunities in originations and profit growth, financial institutions have a clear incentive to solve their retention challenges using new data-driven technology. And even bigger upsides await in relationships. When customers see their financial institution working to educate them and to provide options that meet their needs, a deeper connection is created and customers are more likely to turn to their bank for their financial needs throughout their lifetime.

Rebecca Martin is chief marketing officer at Total Expert.

Explore ways technology can help financial services providers reach the right customers with the right credit products and compete more effectively against nonbank players in the BAI Executive Report, “Technology is pushing lending in new directions.”