WE'RE HEARING every year, the editors responsible for the Oxford Dictionary choose a “word of the year.” In 2013, the folks at Oxford chose the word “selfie.” Yes, I called that word out here in this column last year, but not because I thought the word itself was so important. I just thought it said something about people who choose to focus on themselves instead of the world around them. I guess that was a bigger trend in 2013 than I thought.
If I was going to make a prediction about the mortgage industry in 2014 (which is admittedly a pretty risky proposition) there is no question in my mind that the word of the year for 2014 will be “conversion.”
As our business changes from a refi-driven, order-taking assembly line into a low demand, QM-driven, purchase money market, the key to success for lenders will lie in their ability to convert—at every step along the line from the first moment the consumer encounters their brand all the way to the closing table and beyond.
This past year, most lenders experienced significant demand for mortgage products, driven by low rates and high refinance activity. We were also staring at major compliance changes that were required by year’s end. So, 2013 was a year of capacity management and compliance changes. Naturally, we in the industry needed to take selfies (maybe not to the extent of Anthony Weiner) because we were driven to look at the business we had and try to figure out how much of it we could get done. That was an issue of “capacity.”
How many underwriters are needed? How many more salespeople should I hire? These were the types of questions Stratmor’s clients were asking.
Hopefully, lenders in 2014 will have already built operations that are ready to handle the new compliance requirements, but they are likely not going to have the same pressures on capacity. In fact, this year, it’s going to be all about conversion. And the questions have certainly changed.
Capacity management is dependent upon the ability to manage all the tasks required to make a loan opportunity turn into a loan closing. Last year, in a period of high volume, we were often challenged to follow up on every lead, to answer every inbound call or handle all the bank branch traffic with their questions about mortgages.
If we were a solid retail originator, we likely did not have as much competition for Realtors’ attention. So, we juggled our efforts, but did so thinking that there was surely another lead opportunity right behind it if we failed.
When I try to look at opportunities for our clients, I have to always put my thinking into a mathematical construct, so that my colleague Matt Lind has something to analyze. You see, Matt has an advanced degree in quantitative mathematics from Harvard. I don’t. So, let me keep it simple:
If you had 100 leads and converted only 10% of them, then you would be doing 10 loans per month, a typical call center performer. For a typical retail originator, if you had 20 leads a month and converted 25% of them, you are the typical five-loan-per-month performer.
Now, when leads drop in half, you need to convert twice as many to keep your volume the same (I did that math all by myself, and did not even need the “quantitative” part—triumph of a public school education!). Anyway, this year, sales and marketing managers need to be focused on driving their teams to higher conversion, rather than just managing the capacity generated by higher demand.
What about operations? How important is conversion there? In a word: very. Just as sales now has to work every lead and explore every opportunity, operations needs to be running at peak efficiency to ensure that loans are less likely to fall out.
If a lender is not processing to the customer’s expectations, there are plenty of lenders hungry for deals that will be willing to step in and take that loan away (the dreaded double app!). So, every step in the operations process needs to be tailored to drive the loan to closing, not just meet the requirements of compliance and credit policy. That is a difficult balancing act, but will be critical for success in the tougher climate we’ll be working in this year.
Now that I have done the simple math, I will attempt to “convert” you to the next step in the process of this discussion, more precisely to read in the following weeks as I discuss several observations about how lenders can tailor their sales and operations processes to drive up conversion in 2014.
Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience, from Fortune 500 companies to startups, including management of two of the most successful mortgage e-commerce platforms. He was formerly with Chase Manhattan Mortgage and ABN Amro, where he was a senior executive during the sale of its mortgage group to Citigroup.