Besides technology, what other aspects could be important for banks and credit unions overall mortgage success?
It’s quite clear that lenders who develop the sales skills, the relationships and deploy the technology required to be effective at originating purchase money mortgage loans, will succeed in 2022, where others will not. By year’s end, I expect that many of the lenders who have not developed this capability will have sold out or otherwise moved out of the business.
However, there is another aspect to success that could be just as important to banks and credit unions that hold their loans in portfolio, and that is customer retention. In fact, I believe retention will be the wildcard factor for mortgage success in 2022.
Currently, servicers retain less than 20% of the loans on their books each year, which is down from about 50% in 2011. The longer the loan stays in the portfolio, the lower the retention rate, dropping to only 15% after five years, according to industry data.
Institutions that get better at retaining these customers will be more successful. The better they get at this, the more difficult it will become for small lenders who do not retain servicing to compete with them, because they will be competing solely for first time homebuyers, a relatively small percentage of the business.
This means we could be looking at a world in which mega-servicers with an outstanding Consumer Direct channel could dominate the market. Concentration would sharply increase since smaller IMBs could not afford to retain the sizable servicing portfolios required to compete.
Retention is a result of effective marketing efforts to existing customers, which is something servicers should be working to become expert at in this market. In a purchase money market, the winners will be good at getting prospective borrower attention, something servicers arguably already have.
This is not necessarily good news for independent mortgage banks that sell off all their production. Without the retained servicing this could put them at a real disadvantage because they don’t have that book of business they can go back to. That means they’ll have to go after someone else’s customer.
In the past, that hasn’t been all that difficult, just hit the borrower with a better rate and term and refinance them out of someone else’s portfolio. But the game is different in a purchase money market. Now, it’s more about the relationship with the borrower, earning trust through your servicing capabilities and creating an experience they wish to continue.
That relationship already belongs to the servicer. Success this year will go to those who can retain it.
By Joe Camerieri, EVP, Client Account Management at Mortgage Cadence
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