As published in Scotsman Guide's Residential Edition, July 2005.
In most businesses, the key to success lies in getting repeat business from your customers and from the new customers these satisfied patrons refer. In the mortgage business, repeat business accounts for less than 10 percent of the loans the average lender writes — a statistic guaranteed to strike fear into the hearts of even the most-stalwart marketing executives.
Today, though, some lenders are learning that they can get borrowers to return if they are willing to empower their loan officers with the right technology and mindset.
In the past, there were good reasons why repeat business was difficult in the mortgage industry. Before the 1990s, homebuyers rarely refinanced. People bought a home, financed it with a 30-year fixed-rate mortgage and settled in to pay it off. By the 1990s, the average homeowner called upon a mortgage-loan officer to refinance a home or to buy a new one about every seven years.
Most loan officers found it difficult to stay in touch with people with whom they had not done business in seven years or longer. In fact, with the cyclical nature of mortgage lending, many loan officers weren’t even in the business for seven consecutive years. By the time the borrower came back for another loan, the relationship was back to square one. This put each loan officer on equal footing with every other company in the space.
In the recent past, transaction infrequency was not the problem. Quite the opposite: Historically, low interest rates brought millions of borrowers back to the closing table. This flooded mortgage companies with hot leads. Loan officers became order-takers and have remained so for much of the past four to five years.
Those days, however, are ending. While mortgage volumes are dropping more slowly than many predicted, they are falling, nonetheless. Interest rates are creeping up, and the pool of borrowers who do not already have low-interest-rate mortgages is shrinking. What will be tomorrow’s excuse for not winning repeat business in the mortgage industry?
Although the mortgage business follows fairly predictable cycles, given enough economic data, no one expected the past refinance boom to be so powerful. The volumes in the early 2000s dwarfed everything that came before them. Consequently, the industry’s infrastructure exploded, with every part of the business adding people, technology and the facilities to house them.
Since then, most companies have more to lose. After the dot-com bust and terrorism’s damage to our economy, people are less forgiving when it comes to layoffs and closing branches. The industry’s largest lenders already have had a taste of the negative publicity that comes with downsizing their staff. Without a way to increase the business coming in the door, however, most companies will have little choice but to scale back their operations or go out of business.
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