Timely Advice Beats a Rate-Only Mortgage Lending Strategy

Bank and credit union mortgage lenders are putting too much marketing emphasis on rates. It's a no-win strategy in a commoditized market. New J.D. Power data supports a shift to becoming a home buyer's advocate early in the shopping process. Consistent communication is essential to making this work.

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The average mortgage has become increasingly commoditized, and few lenders have found the right customer experience strategy to stand out from the competition.

That challenge has been complicated lately by the impact of rising rates on mortgage demand. Yet this is “precisely the time when lenders need to differentiate themselves as trusted advisors who can guide customers through the lending process and offer valuable counsel along the way,” says Craig Martin, executive managing director and global head of wealth and lending intelligence at J.D. Power.

Communication is a big part of the solution — keeping customers informed through the lending process and ensuring consistent messaging through all channels. “Unfortunately, less than one in three customers say their lenders were able to deliver that optimal experience,” says Martin, citing data from J.D. Power’s 2022 U.S. Mortgage Origination Satisfaction Study.

A separate survey of 200-plus senior mortgage executives by Fannie Mae in the summer of 2022 lends credence to this observation. “In preparing for the shift toward a more purchase-mortgage-focused market, lenders most commonly cited improving the origination process and customer experience as their top strategies,” it concludes.

A similar Fannie Mae survey in the fall found that “lenders who did invest in digitization found their digitization efforts effective at improving consumer experience, reducing cycle time, increasing productivity, and enhancing quality of work.”

Rate-Only Competition Is a Dead End

With lingering economic uncertainty, recession fears, and the Federal Reserve’s aggressive action to contain rising inflation, the days of 3% mortgage rates are long gone. Robin Rothstein, a member of the Forbes Advisor Staff, polled five housing experts and their predictions for 30-year fixed-rate mortgages for 2023 range from 5.5% to 7.5%.

This focus on rates is reflected in how most lenders are going about seeking applicants now — and subsequently boosting the growing commoditization of the industry.

How Do You Stand Out?:

Consumers are a click away from offers from three other lenders. So aim to be of help early on, before potential home buyers even start pursuing a mortgage offer.

The lack of differentiation among lenders is apparent in a few of the telling results J.D. Power released from its mortgage satisfaction survey. For example, the top- and bottom-performing lenders in overall satisfaction were separated by just 87 points, on a 1,000-point scale.

The number one reason consumers gave for choosing a specific mortgage lender was rate, which suggests that lenders may be placing too much emphasis on price, further reinforcing the notion that there is little difference among the options.

Other selected results from the J.D. Power consumer survey include:

  • 45% strongly agreed that the job of the lender representative is to walk through each step.
  • 43% strongly agreed that they rely on expertise of the lender representative.

“In the mortgage marketplace you’re a click away from three more offers from three other lenders,” Martin tells The Financial Brand in an interview. “The next question is, how do you stand out?”

Based on the survey results, the answer lies in focusing on the customer experience.

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De-Emphasize the Mortgage ‘Transaction’

The way to set your institution apart in mortgage lending is to approach potential home buyers long before they settle on a specific property they want.

“If you’re waiting until when they’re ready for the house, then it is a transactional product,” Martin points out. “The key for firms to separate themselves is to not just give the loan and do the underwriting, but to show how you engage and support them in a way that’s more impactful.”

Engage and Support:

Mortgage lenders should be an advocate versus just a product provider.

It is when people are just starting to think about buying a house that the lender can become a trusted advisor. Lenders have the experience to help would-be home buyers understand what they are getting into and how to prepare. “You can become that advocate versus just being there as the product provider,” Martin says.

Here’s where the customer relationship can take a mortgage lender to the head of the line. Lenders can use the data they’ve already collected on potential home buyers to look for hints that they might be close to the shopping phase, such as casual questions about the market or changes in budgeting and savings.

The mortgage lender could even, with the customers’ consent, preemptively input certain data and show them their potential for future home buying considerations. “One of the interesting things we’ve seen in broader research is that younger consumers especially are open to that value-added advice,” Martin says.

What Trusted Advisors Do for Mortgage Customers

Once a consumer is in the fold, J.D. Power’s survey points out that there are six key moments of truth in the mortgage process that determine whether the lender is viewed as a trusted advisor:

  1. Providing advice on customers’ financial situations.
  2. Explaining the application process.
  3. Fully answering application-related questions.
  4. Meeting expectations for what is required.
  5. Explaining the closing process.
  6. Providing information about servicing.

“Less than half (48%) of mortgage customers say they were kept fully informed in all the phases of the process,” J.D. Power notes in a report on the survey results.

Personal Versus In-Person:

Less than one in five home buyers felt it was extremely important to meet with their lender face to face.

Communication is the key, then, but how to do it? According to the survey, 43% of borrowers said they were completely comfortable completing the mortgage application entirely via self-service. However, 43% of respondents (not necessarily the same people) said it is extremely important to be able to speak with a live person via a phone. On the flip side, only 19% said it was extremely important to be able to meet the lender in person.

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Mobile, Portal Channels Are Best

“All things being equal, the mobile device is the first stop,” Martin says. “Not necessarily a mobile app per se,” he adds. But a mobile phone “is in your pocket every second of your life. You can take pictures. You can engage in self-service.”

And, of course, consumers can use it to speak with a human representative.

Following mobile, Martin says a real-time computer portal is important for mortgage lenders. “It can be viewed as the source of truth for real-time information,” he says.

Email, however, is problematic, even though it is the most common channel used in the mortgage process.

Why? People tend to read personal email later in the day. An email sent in the morning saying a particular form is missing may be out of date by the time the recipient gets it. The person may already have provided the form in the meantime, perhaps by getting a text alert.

Ensure Consistency in Customer Communications

“The problem on the communication process that I’ve observed is inconsistency,” says Martin. “You have people getting involved, emails going out, a portal says something, and maybe you’re sending out letters. There are lots of different communications coming at the consumer and they’re not always saying the same thing. So there is confusion.”

New technologies such as artificial intelligence, chatbots, and video conferencing can be powerful tools lenders can use to communicate with mortgage applicants and to differentiate themselves. But the key is to ensure these tools are deployed in a way that makes the process easy, clear, and efficient.

J.D. Power suggests lenders ask themselves these questions:

  • Today, what are your primary communication channels with customers for key steps in the process?
  • How well do your website and mobile options meet the needs of the customer for key actions?
  • What do customers expect in return for going all self-service?
  • How does technology and human interaction fit into your value proposition?

“The really critical strength [of a communications plan] is that there is a consistency of messaging, a consistency of information, a consistency of source,” Martin says. “The key is, how are you using the technology? Have you set expectations? Have you educated the customer on how things will happen?

“When the right information is going through the right sources consistently for every customer, that is a great digital experience that can really be a differentiator.”

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