Record Low Interest Rates Reveal Hidden Mortgage Industry Weaknesses

Although record-low interest rates have led to a huge uptick in home sales this year and a refinancing boom, this has also revealed some underlying difficulties in digital originations.

A study conducted by J.D. Power shows that mortgage originators face some challenges this year when it comes to self-service tools for application and approvals and keeping up with frequent communication and minimizing long loan processing times. All of these challenges could potentially have a negative impact on customer satisfaction.

Jim Houston, managing director of consumer lending and automotive finance intelligence at J.D. Power, says that mortgage originators have had undergone “strain” due to increased customer inquiries.

"It’s been a complicated year for the mortgage industry," Houston said. "Between surging customer volumes on the origination side, an influx of customer inquiries on the servicing side and a workforce that has been completely displaced by the pandemic, resources have been stretched to their limits. That strain is showing up in slower loan processing times, missed opportunities to communicate and unreliable self-service tools. While some of these shortcomings may have been opportunities in prior years, current market conditions and customer satisfaction metrics indicate that mortgage originators need to look hard at fixing them if they want to stay viable."

The J.D. Power 2020 U.S. Primary Mortgage Origination Satisfaction Study shows that despite these “shortcomings,” overall customer satisfaction with primary mortgage originators rose this year by six points on a 1,000-point scale. This is likely due to record-low interest rates drawing in customers.

However, one challenge originators face is avoiding increasing the time it takes for the refinancing process. The study found that there the average time it took for refinancing processing was 42 days in 2020, up from 39 days the previous year.

The study also found that “the number of customers using self-service channels for loan applications and approvals increased five percentage points this year,” however customer satisfaction with the application and approval process fell by 10 points this year among customers using these self-service digital channels.

J.D. Power concluded that customer satisfaction was directly tied to the frequency of communication between lenders and customers during the application, closing, and onboarding processes. As all of these processes are increasingly done online due to COVID-19, lenders will need to find innovative ways to stay in touch with customers and juggle the increased volume of online mortgage and refinancing applications.