Mortgage originators who have been competing on price as refinancings predominated in recent years are likely to lose out to those who emphasize good service in today’s home purchase-oriented market.
Unlike refis, purchase transactions typically require more handholding by the originator to bring the consumer through the process. And customers remember and pass on their experiences with a lender to their families and friends, both the good ones and the bad ones.
"In a declining origination market, customer service becomes a heck of a lot more important," says Malcolm Hollensteiner, director of retail lending products and services at the Cherry Hill, N.J., bank, a unit of Toronto-Dominion. "The consumer perception is that obtaining a mortgage now is worse than getting a root canal."
Nearly three-quarters of consumers in a recent PriceWaterhouseCoopers survey listed rates as one of the top five reasons they choose a lender. But next was having an easy to understand process, 27%; the lender's reputation, 26%; an existing relationship 22%; and personalized support, 12%.
The financial services industry in general still has a lousy reputation in the eyes of most consumers. Just one-quarter of those surveyed by PwC say financial services companies have a positive reputation, compared with 58% for retail.
"It was pretty evident from the results that the loan officer continues to be the piece that customers remember the most," says Roberto Hernandez, a principal in PwC's consumer finance group. "Even though our study also shows that customers have the interest rate as their most important factor when they are making a decision to go with a particular lender, what the study also told us if they have a good experience with the company, they usually relate that with loan officer they were interacting with. That is the person who usually gets the first or second phone call the next time the customer has mortgage needs."
However, consumers show no loyalty to the financial institution they have their primary banking relationship with. A separate survey by TD Bank found that 37% of respondents went to the financial institution where they had their primarily relationship for a mortgage loan; another 12% said they went with another institution they had business dealings with. But 45% said they used an institution where they did not have an existing account, while 6% responded they used another unaffiliated company for their mortgage.
Because of the way TD Bank conducted the survey, it did not get into the reasons behind why consumers elected to go elsewhere. The survey does include people who got a mortgage at TD Bank as well as people who do not have a relationship with the company. It also did not ask what banks or lenders they had a relationship with.
The mortgage meltdown might have caused consumers "to lower their internal expectations bar so that when they do get a relatively positive experience, they view it as an extremely positive experience," Hollensteiner says.
It is the first-time homebuyer or purchase customer who tends to be more reliant on the loan officer because of their unfamiliarity with the process. Thus they are more likely to have a lasting impression of the loan officer, Hernandez says.
Other industries have more frequent opportunities to restore their reputation if there is a problem in the process, but consumers only seek housing finance (including with a refinance or second home purchase) a few times in their lives. Thus if they had a good experience and a high level of service, they are likely to be a repeat customer, he adds.
"The customer's experience, more than ever, is going to be a competitive advantage in this industry. If you look at other industries, the companies who are leaders have focused on two things for the most part. No. 1, on making the process in which customers interact with them simple; and No. 2, having an easy process to understand for the consumer to go through whenever something isn't going well," Hernandez says.
Consumers want from their mortgage lender simplicity, transparency and a similar experience to what they get when dealing with other retailers. "The time has come for mortgage companies to start thinking about what they need to do to offer a similar experience," he says.
The TD Bank study found that 70% of those who purchased a home in the past two years rated their lender as excellent or very good because of their responsiveness, honesty, transparency and ability to explain mortgage rates and terms.
But the number of consumers who called the transaction stressful increased six percentage points in the 2014 study from the 2013 version, to 30%.
Two-thirds of the respondents say they had a very good or excellent experience getting approved for a mortgage. But only 51% have the same response for the length of the entire home buying process.
Quicken Loans has consistently topped the J.D. Power & Associates customer satisfaction the past few years. The company was cited for reducing consumers' worries by making the process easier and through communication.
A lot of what loan officers need to do "would not require a significant investment or a significant change in the operation. Customers value a lot of the small things," Hernandez says. Loan officers need to be trained to focus on the customer, and treat each client like they are in a relationship, not a transaction.
Consumers told PwC that they want to know more about what to expect during the loan application and underwriting process, he says. This can be as simple as giving clients a piece of paper up front detailing what is going to happen and then making certain they are kept up to date.
Even if there are delays, if the customer is kept informed, they are more likely to consider the interaction as a positive experience.
Digital channels need to complement the personal touch. Borrowers do not want an all automated process nor do they need in-person contact at each and every step. So companies need to be able to respond to clients in the way they want, the PwC study finds.
TD Bank's study has a similar conclusion. "We know that the consumer is using the Internet more than ever for research, but at the same time, they are demanding more personal and live contact with their lender," Hollensteiner says.
The overnight delivery services saw their consumer satisfaction ratings improve when they began providing almost-real time status about where a package is. This was information they had for years but were not sharing it. This providing of information to the customer can also be done by mortgage originators, Hernandez says.
And those systems used by lenders need to communicate with one another as to avoid repeated requests for documents, PwC found. And those requests for documents need to be specific. A customer might interpret that the request for a bank statement is only for the first page, not for the whole document or other individual pages, he says. That could make a big difference in customer satisfaction.
"The more information you provide to (clients), the more that they are going to understand what are the pieces under the control of the lender and what are the piece under the control of the borrower, like submitting completed documentation on an application," Hernandez says.
If the lender educates the consumer to the process, it removes the feeling of it being a burden for the consumer to provide the paperwork, Hollensteiner says. Instead it becomes a partnership and the customer appreciates why the lender has these requirements.