Nonbank lenders are gaining a bigger piece of the mortgage market. That's bad news for big and midsize banks — but it may prove to be a boon for community banks.
The country's four largest banks will see their mortgage originations market share fall from 45% to about 30% by 2020, according to a 2014 Accenture report. Midsize banks will see a drop from 23% to 17%, while online lenders are expected to more than double their share from 6% to 15%.
Online and independent lenders have achieved their success by focusing on digital technology and customer convenience. As an example, J.D. Power recognized Quicken Loans for five consecutive years of high consumer satisfaction in 2014. The time from application to approval averages less than 18 days for Quicken customers — eight days shorter than the industry average of 26.
Community banks can learn a lot from the consumer shift to nonbank lenders. Right now, small banks are losing retail deposits to national banks. But the mortgage business caters to their inherent strengths: knowledge of borrowers and local conditions.
These are attributes that often elude national institutions. A recent study from the Mercatus Center at George Mason University found that smaller banks' ability “to gather and consider soft information’ enables them to lend to borrowers that might not be able to get loans from larger institutions that rely more on standardized lending criteria.”
Yet borrower relations and local knowledge aren’t enough to secure the future. Accenture predicts that competitive pressures and industry consolidation will eliminate 20% to 30% of current lenders by 2020. To survive and thrive, community banks must follow the lead of nonbank lenders by embracing digital technology and customer convenience.
Online searches related to real estate rose 253% between 2008 and 2012, according to a joint study by Google and the National Association of Realtors. One-fifth of all searches related to real estate occurred on mobile devices in 2012 — a 120% increase over the previous year. Nine out of 10 house-hunters searched online for help at some point during the home-buying process, with 52% choosing that as their first step in the process, according to the report.
Community lenders can take a big step toward a profitable future by making their mortgage processes digital. They should start by switching to electronic closing documents. According to a 2013 J.D. Power study, closing satisfaction among the 8% of customers who closed their mortgage using electronic documents in person averages 830 on a 1000-point scale, while satisfaction among the 84% of those who closed with paper documents in person averages 772. Electronic processing also offers community banks the additional advantages of speed, cost-efficiency and flexibility.
Community banks should also consider launching a Google search engine ad campaign in order to help home-hunters find them online. Bankrate and NerdWallet are two other good websites for displaying digital ads, since consumers use them to compare different mortgage products. Zillow is also a good site for reaching prospective home shoppers, while Lending Tree is an option if you want only high-potential leads.
Community banks should also build mortgage websites with plenty of features that engage consumers, such as a rate watch monitor, loan payment calculator, home-buying quiz or pre-application option. Once current and potential customers visit your site, you can court them for a few months by putting cookies in their browsers. Your ads will follow them as they browse the Internet.
Nonbank mortgage lenders are proving that a simple and convenient online presence is key to consumer satisfaction and market growth. By digitizing the entire mortgage origination process — including advertising — community lenders will be better able to enhance efficiencies, manage compliance requirements and enjoy greater flexibility. In this way, they can be agile and innovative while retaining the homespun service that differentiates them from the big bank down the street.
Kevin Tynan is senior vice president of marketing at Liberty Bank in Chicago. He can be reached at tynanmarketing.com and on Twitter at @kevintyn.