After slowing to a 30-year low in 2023, the gears of housing finance are re-engaging. But before diving back in headfirst, it would be worthwhile for lenders to think through what the last two years of scarcity reveal about the normal working model of an independent mortgage bank (IMB).
Last year, Floify commissioned an independent study of 150 high-performing loan originators (LOs) to gain recruiting and retention insights. It comes as no surprise that, in the process, LO feedback also uncovered mission-critical operational lessons for the lenders that employ them.
You can learn a lot about any industry by asking its top earners what energizes them toward peak performance. This exercise can reveal inherent weaknesses and strengths in the business model.
To appreciate the current state of our industry, consider that 31% of mortgage borrowers abandon their loan application and only 18% of consumers return to the same LO.
These figures point to a “stickiness” that’s largely missing in our industry. Ironic, isn’t it, that an industry purposed to help consumers achieve arguably the most important financial transactions of their lives has a tough time keeping them close?
When you consider the values communicated by LOs in our study, the message telegraphed is that they understand competitive differentiators, and they appreciate the role played by automation in their efficiency and effectiveness. Here are some of the points we heard LOs make most clearly: 89% said that not having access to digital mortgage tools is a reason to consider moving to a different company; 95% said that flexibility to customize the technology they use is the top factor to their success; and only 38% were “definitely happy” with their current document collection methods.
Mortgage lending businesses tend to place the greatest value on production-oriented LOs — and it shows in compensation formulas tuned in to new applications and new loans rather than customer retention and loyalty.
Our research suggests that LOs understand very well what creates their success with the strategy of locating and initiating new transactions. For example, when it comes to closing deals, LOs cited process-oriented tasks as most helpful — such as communication (69%), integration (69%) and automation (67%) — while prioritizing the customer experience (31%) came in dead last.
If we assume that the optimum strategy for a mortgage lender is to find sources of new transactions and to rapidly process those transactions, these priorities make sense and, if managed professionally with minimal pain points, can create a positive, albeit transactional, impression.
If it were not already obvious from their values as described above, more top-performing LOs (79%) acknowledge that they focus on finding new customers rather than retaining existing ones (21%). Thus, it makes sense for these top performers to rank communication with clients as most crucial when clients are: applying for a loan (49%); getting pre-qualified (40%); going through underwriting (11%); and closing (1%).
After closing, these same top performers then prioritize staying top of mind for their clients’ next purchase by way of: follow-up message (44%); discounts and promotions (40%); and sending birthday and anniversary cards (38%).
These specific tactics characterize a business development approach that is not compensated for retaining customer loyalty, since it requires a concerted effort to achieve and sustain relationships, and even then it is not guaranteed given the time horizon of a second transaction.
An industry that fails to prioritize repeat and referral business will naturally come to rely on business development methodologies widely viewed as consumer abuse (think “trigger leads”) and may find itself with a credibility problem. A credibility problem might explain why so few borrowers return to their original LO for subsequent transactions.
With the commoditization of lead channels and pressure from large fintechs and direct-to-consumer models, lenders must pivot towards owning the home finance and homeownership experience. This requires deeper connections with homeowner borrowers and empowering LOs to own the consumer experience.
The mortgage industry stands at a crossroads, and our focus must shift from solely acquiring new transactions to sustaining long-term customer relationships. Through technological innovation, process improvements and a renewed focus on customer retention, we can better serve homeowners and aspiring homeowners alike. This is not just a business imperative but a fundamental change in how we approach the home finance experience.
Sofia Rossato is the president and general manager of Floify.
