How to end the annual borrower exodus
Mortgage leaders have long claimed any expenses incurred from buying and managing mortgage servicing rights (MSRs) because they anticipate new business won from those portfolios. It’s a compelling argument for the mortgage lenders that service approximately $11.7 trillion in loans in 2021.
Yet the mortgage industry doesn’t perform when it comes to realizing the full income potential of MSRs. According to Black Knight, servicers retained just 18% of the estimated 2.8 million homeowners who refinanced in Q4 2020—the lowest share on record—despite originations hitting all-time highs.1 And the retention problem is about to get much, much worse.
Lenders typically face their highest runoff rates during the spring as the purchase market begins to ramp up. Today’s low mortgage rates and higher home prices are motivating more homeowners than ever before to refinance their mortgages, buy new homes, or sell existing homes. In 2020, lenders originated a record-breaking $4.3 trillion: $1.5 trillion in purchase loans—the largest annual volume since 2005—and an all-time high of $2.8 trillion in refinances. Industry experts forecast the market to post similar results in 2021.2
While good news for the industry overall, this “double-up wave of 2020 and 2021” is accelerating runoff rates, shrinking the pool of refinance candidates, and shining a big, bright spotlight on the effectiveness—or ineffectiveness—of mortgage lenders’ retention strategies.
“Many lenders take a seasonal, ‘one-and-done’ approach to retention marketing despite investing quite a bit of money to initially obtain the MSRs,” says Joe Welu, founder and CEO of Total Expert. “They do very little in the way of providing ongoing value to borrowers throughout the course of the year. As a result, they aren’t thought of as a preferred lender when borrowers need a new mortgage or when unexpected things like this year’s double-wave market phenomenon prompt urgent and massive mortgage needs.”
It stands to reason that strategic, purposeful information delivered at the right time to the right borrowers could significantly improve a lender’s mortgage servicing retention rate. But not every tactic delivers the same impact. According to Welu, lenders that take these four steps are most likely to become the preferred lender for their borrowers’ next mortgages—and beyond.
Lifetime Value – Weaving Relationship Building into Servicing Processes
Mortgage leaders are now turning their attention to the servicing portfolio as a long-term opportunity to deepen customer relationships. With monthly statements, actions required by regulations, and borrower interactions, servicing interacts with borrowers more than any other mortgage department. Yet, many lenders do not seek to build stickiness into the relationship with borrowers.
“MSRs are an awesome new opportunity for lenders to develop longer-term relationships with their customers—it’s about connecting the customer journey in a holistic way, from beginning to end,” says Julian Hebron, founder of The Basis Point. “Everyone in lending has been on a modernization journey [focused] on modernizing originations. Now, the second phase is modernizing servicing.”
Lenders’ first opportunity to modernize servicing comes from customization options available in the servicing relationship. Consumers tend to like companies that offer a customized experience. A significant number of borrowers are paid twice a month, but most mortgages come with monthly payments. Most servicers allow borrowers to shift to biweekly payments – a schedule that would more closely fit their biweekly cash flow – but they don’t share these options with borrowers. Offering these types of options when available provides the borrower a better experience.
Download our guide to access two additional strategies to become borrowers’ lifetime lender and increase your customer retention rates from the industry average of 18% to Total Expert’s customer average of 70%.