Editor's Note: This story originally appeared in the January issue of MReport, out now.
Rising mortgage rates, a supply crunch, and problems with affordability at the lower end of the market are just some of the larger trends that are likely to make an impact on the housing market in 2019 as sales and mortgages continue to plateau. The new year is, therefore, also a time for mortgage companies to make business resolutions, which when implemented can help them keep their bottom lines healthy in an ever-changing business landscape. To help them make these changes, MReport spoke to industry experts who gave four key takeaways that can help them in the future success of their companies as well as the industry.
1. Service with a Smile
“Great service isn’t a nice to have, it’s critical,” said Tony Ebers, COO, Mr. Cooper, underlining the importance of customer service in an environment that is seeing a steady decline in mortgage originations. According to Freddie Mac’s November 2018 forecast, single-family originations were expected to decline 9.9 percent year-over-year to $1.63 trillion in 2018 and drop further to $1.62 trillion in 2019 as a result of shrinking refinance activity.
While total originations are set to decline, loan supply for home purchases is projected to rise to $1.24 trillion in 2019, up 4.2 percent from 2018, according to the MBA, which also projected refinance activity to fall to $395 billion in 2019, down 12.4 percent from 2018, before increasing to $410 billion in 2020—a clear indication that customer service, would play a huge differentiating factor among lenders. With the refinance business declining rapidly, John Vella, Chief Revenue Officer at Altisource, stressed the need for customer satisfaction to beat the competition. “The key to retaining your market share is customer retention and customer cross-selling,” Vella said. “From the time you bring on a new customer, it is imperative to ensure that they are satisfied so that they don’t leave you and come to you the next time they need a loan or another product.”
To ensure great service and retention, it is equally important for lenders to focus on the “emotional aspect of the business,” said Tom Hutchens, SVP, Sales, and Marketing at Angel Oak. “Many mortgage lenders focus only on the transactional element of closing loans. Too often, as a result, many borrowers walk away from their home buying experience with a bad taste in their mouth for the lending process. Our philosophy is that the business and emotional side can be equally important.” Dwelling on the servicing aspect of the mortgage process, Ebers said, “Our industry hasn’t put enough focus on innovation on the servicing side. As one of the nation’s largest home loan servicers, we’re addressing this and taking a different approach. We’re focused on providing customers with better tools and technologies that put the home, rather than the loan, at the center and simplifying the homeownership journey.” “The mortgage process wasn’t designed with the consumer in mind, so it’s no surprise that going through the application and funding process can sometimes be a nightmare for the average borrower,” said Rick Sharga, EVP Carrington Mortgage. “This is especially true for first-time homebuyers, who are in uncharted territory, to begin with, and under stress in today’s low-inventory, high price, rising interest rate market.”
According to Hutchens once a lender embraces the fact that buying a home is, for some people, a high aspiration that a mortgage lender can bring to life, each loan will be handled with a more personal approach, keeping the customer front of mind. He said that at Angel Oak, the loan officers were constantly reminded that they impacted the ambitions and lives of many people. “So we treat every loan as a unique opportunity to make a difference,” he said. To make the process easier and less stressful for such customers, Sharga recommended making the loan process available “wherever and whenever the borrower wants, and on whatever device.”
2. Integrated Capabilities
Sharga makes a valid point. Integrated capabilities are in fact a must-have for many lenders today. In a recent webinar, Joe Tyrell, EVP, Corporate Strategy at Ellie Mae gave insights into the divide between homebuyer demands for transparency, speed, and a high-tech human touch process and how it compared to a lender’s view of consumer engagement. According to Ellie Mae’s research, 92 percent of around 3,000 homebuyers who had just completed the mortgage process had begun their homebuying process with some type of online research. When Ellie Mae had asked the respondents during the survey what was the No. 1 thing that lenders could improve in the mortgage origination process, the answer, especially by millennials, was, “make the process go faster.” The second-most-important reason given by the respondents, however, was more surprising, Tyrell explained. “It was to have more personal interaction with their lender,” he said. So how could lenders integrate their capabilities for the high-tech human-touch experience? “It really starts with asking yourself as a lender three basic questions,” Tyrell said.
First, he said, lenders must ask how they were creating interest. It could include channels such as buying leads, sending emails, and counting on the loan officers to bring in the business. The second question, according to Tyrell, was how could lenders engage consumers once they responded to the interest created by them? And third and most important was “what is your strategy to cover 100 percent of those people who expressed interest and are willing to engage?” Vella agreed, saying that both technology reach, as well as a personal touch, were key requisites for customer engagement today, a thought echoed by Ebers as well.
“For our industry to be successful, we need to meet customers where they want to be met, whether it’s on the web or their mobile device, over the phone or even face-to-face through a web call,” he said. Additionally, according to Ebers, throughout the life of a loan, homeowners can benefit from more self-service options and greater education to provide them with the information they need when they want it. But customer service also means improving the back-end processes and systems and reducing timelines while remaining within compliance of federal regulations, which, for many lenders is a tough act to balance.
3. Managing Risks and Compliance
In a recent article on theMReport.com, Eric Wilson, SVP, Business Leader - Mortgage for SLK Global had said that there was no part of the mortgage lending business that was not subject to the continuing pressure from federal and state regulators. “Even with the recent Dodd-Frank rollback legislation signed by President Trump in May, compliance will likely remain a top concern for the industry,” he wrote.
“It is anticipated that any regulatory slack offered by the federal government will be taken up by state regulators. This is especially true on the servicing side, where consumers are captive to the servicer and have no choice in how these firms operate.” 2019 will be no different from a compliance and risk perspective according to Regina M. Lowrie, President, and CEO of RML Advisors who said that the industry was becoming more dependent on third parties to perform critical services in manufacturing, hedging, and servicing. “Generally Accepted Accounting Principles and various regulatory requirements dictate that firms must manage high and moderate risk vendors whose actions can significantly impact the lender’s risk profile,” she said. Lowrie also observed the risks of wire and identity fraud associated with real estate as another factor that could impact lender bottom lines in 2019 if they took these threats lightly.
“Borrowers and lenders need to recognize that the size of the average home purchase transaction is so significant that it attracts cybercriminals who closely follow public and social media data to try to have down payment and closing funds wired to bogus bank accounts. We hear reports of at least one attempt every week,” Lowrie said. “As the FBI’s Internet Crime Complaint Center has noted, lenders and borrowers should be verifying the bank account to where funds are being transferred before wiring any funds.”
Yet, it is easy to mitigate these issues and many real estate professionals are using fintech to ensure a more secure mortgage experience for their borrowers, according to First American’s Real Estate Sentiment Index for the fourth quarter of 2018. First American noted that 45 percent of title agents and real estate professionals surveyed said that the most important financial technology that helps potential homebuyers accelerate transactions is secure collaboration and communication portals. The respondents indicated that a secure platform allowed them to correspond with lenders, real estate agents, escrow officers, and other parties involved with the real estate transaction.
The report also noted that 34 percent of real estate professionals believed that remote online notarization and eClosings would have a larger impact in helping homebuyers close their transactions faster and more efficiently. “eClosing, the electronic execution of mortgage loan closing, can also reduce the risk of manual errors in the closing process, improving loan quality alongside efficiency,” said Mark Fleming, Chief Economist at First American in the report. According to Vella, fintech capabilities also help lenders in managing risks and compliance issues. “In the mortgage origination process, there are several key data capture points and timeline adherence that must be met, especially from a compliance and regulatory issues standpoint,” he said. “The successful operators in the industry are using artificial intelligence and data mining to make faster and more informed decisions throughout the process. Implementing dashboard reporting and workflow analytics also improves timelines and transparency in the process.”
4. Talking Technology
While fintech is being embraced by lenders and real estate professionals to enhance the home buying experience of their customers, Vella said that while lenders were optimistic about using new technology, implementing the technology could take longer due to various reasons. One key reason, according to Vella, was the tendency to overcomplicate the implementation process, and trying to absorb too much change. “The technology decisioning process should include selecting a vendor and then simplifying and getting in 70 percent of what you want versus trying to do too much with the technology,” Vella advised. “When you try to do too much with the technology, it extends the timeline to install and integrate it, leading to additional costs in terms of resources and time to market.” The key to solving this issue, therefore, was to try and not overengineer it.
According to Sharga, technology should also be looked at to help lenders make the mortgage process and the homebuying experience one seamless transaction. “There will ultimately be a convergence of real estate and mortgage technology, so the next generation of lenders should focus more on the consumer experience, and less on making incremental improvements in back-office efficiency,” he said. “Lenders need to integrate the home buying experience with the mortgage process.” Apart from originations, lenders can also use technology to help their existing customers. Giving an example of how Mr. Cooper was using technology to educate its customers on using their home equity to optimize their debts, Ebers said that the company had recently launched an app, Mr. Cooper with Home Intelligence, that was designed to provide its customers with valuable insights to better understand how their home fits in their broader financial picture.
“Today, one of the biggest challenges we want to help solve for is the consumer debt crisis. As we see consumer credit card debt and interest rates continuing to climb, we recognize that many Americans are facing significant financial pressures,” Ebers said while explaining the idea behind launching this app. “At the same time, home equity is at an alltime high. But, many homeowners aren’t aware of how to tap into that equity to optimize their personal balance sheets.”The Must-Haves While technology and an integrated experience will go a long way in enhancing customer engagement, Hutchens said that the main ingredient of winning over borrowers was letting them know that you cared about their business.
“Prospective borrowers rely heavily on references and research before choosing a lender and careful attention and follow up with current and former borrowers lets then know that you care about their business, leading to referrals and new business based on a solid reputation.” Looking within the organization, Vella said that he is a big believer in creating robust change control processes and training programs, along with a culture that embraces change and innovation at all levels.