Servicer retention hit bottom, and volatile rates aren't helping

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Customer retention for mortgage servicers bottomed out at the start of the year, and a sensitive mortgage rate environment isn't helping, according to Black Knight.

Servicers retained just 18% of refi customers in the first quarter, marking the first time this metric fell below 20% since Black Knight began recording this data in 2005. At the same time, fluctuating mortgage rates further increased competition.

Just last month, a decline in rates enlarged the refinance candidate pool by 1.6 million in a single week, but 1 million of those fell right out of the category when rates inched up only one-eighth of a percentage point, shrinking potential refi business for servicers.

"This is critical, because refinances driven by a homeowner seeking to reduce their rate or term have always been servicers' 'bread and butter' when it comes to customer retention. Offering lower rates to qualified existing customers is a good, and relatively simple, way to retain their business. Unfortunately, the market has shifted dramatically away from such rate/term refinances," Ben Graboske, Black Knight's data and analytics division president, said in a press release.

Rates aren't helping servicers the way they used to. Back in 2012, customers lost to the competition received about a 0.25% better rate, but now that figure stands about the same for those who would have stayed.

"In fact, nearly 80% of 2018 refinances involved the customer pulling equity out of their home — and more than two-thirds of those raised their interest rate to do so. Retention battles are no longer won — or lost — based on interest rates alone," Graboske said.

"A simple 'in the money analysis' doesn't provide the insight necessary to retain customers and can't take the place of accurately identifying borrowers who are likely to refinance and offering them the correct product. Rather, understanding equity position — and the willingness to utilize that equity — is key to accurately identifying attrition risk and reaching out to retain that business," he continued.

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Servicing Refinance Mortgage rates Servicing systems Black Knight