These days, every week brings a new report, forecast or piece of news reminding us that the mortgage lending market is in uncharted waters. Mortgage demand fell 6% week over week at the end of July. Applications dropped 7% in the same period. The national inflation rate eclipsed 9% in June. Things have changed even more since then.
As lenders, we know these things to be true not just within the context of a recent market report — we see it happening every day on the ground, in the weeds with homebuyers, real estate agents and partners. In a field built on risk — like mortgage lending — the lack of control or agency can often feel like the biggest risk of all.
It can also be truly liberating. It can force lenders back to the basics — to refocus on the things they can control that have always been the most important element of the home-buying journey anyway: How customers feel when they work with you.
In the age of automation and analytics, altruism can often feel less quantifiable, and perhaps less important as a result. Even those who value it will often say something like, “You can’t put a price on experience.”
Except, you very much can.
The polarization of the lending market
The state of the housing market today has pushed homebuyers into one of two camps: those who feel they missed out on their opportunity to capitalize on low rates and high appreciation, and those who desperately need to move and will largely be undeterred from a negative market shift just by nature of their circumstances. Such a reality stands in stark contrast to what we saw even a few short months ago, when the FOMO (fear of missing out) was real and correctable and everybody wanted a piece of the action. The FOMO homebuyer is now just trying to weather the storm, as we’ve seen in recent weeks with the dips in demand and applications.
But the homebuyer that needs to move is still out there looking for the right home and the right partners to help them get it. They know the homebuying process right now is going to be more challenging both logistically and financially. They also know that a lender can compound those challenges or reduce them to a mere speed bump rather than an insurmountable hurdle.
For lenders who prioritize providing exceptional experiences, there’s never been a more perfect customer — or a better opportunity to capitalize on the value they deliver that many others don’t.
The greater the need, the better the service
How lenders, particularly local ones, service their customers and loans over the next six months will be the greatest factor in their ability to survive the market shift.
There are two reasons for this. First is their ability to maintain short-term profitability even as fewer people search for homes. That’s simple enough: When there aren’t as many loans, capitalizing on the ones that come through become exponentially more important.
With all other factors like rates and costs being relatively equal, the difference will always come down to the elements that comprise the customer experience: responsiveness, time to close, one-on-one engagement and education, local market expertise, transparency and human connection.
These things you can absolutely put a price on and brings me to my second point about the role customer service plays in survivability: future revenue.
How exceptional service creates long-term ROI
When the opportunity to refinance comes, it will come for just about everyone. As early as the first quarter of 2024, we may begin to see a seismic boom in refinancing for millions of homeowners. When they pick up phone, it’s easy to see how spending an extra couple hours with a customer now can increase their likelihood to call you instead of a new lender.
The same, of course, is true for the rest of the market. If lenders can push through the notable decline in retention. A 2021 report from Black Knight found that only 18% of borrowers kept the same servicer across multiple transactions at the end of 2020. Cash-out refinances fell to 11% retention, while rate-and-term refinances hovered at 23%.
The biggest reason? Poor service and an overreliance on digital tools. The latter often drives the former, as lenders over the last several years leaned so heavily into technology to meet heightened demand and volume that they inadvertently pigeon-holed customers and failed to compensate for a dominant digital experience with a more personable human one.
The decline in origination volume in recent weeks and for the foreseeable future only reinforces the need for lenders to invest in service as much as technology.
Because while repeat customers are a rarity in lending, they don’t have to be. It’s just been the price lenders have paid for not focusing on the thing their customers want most: better service.
Eric Bernstein is co-founder and president of LendFriend Home Loans.
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