For two tumultuous years, the housing market has twisted and turned through rate environments, sellers’ markets, and equity booms. Now, as it nears the end of 2022, headwinds face both the housing and mortgage sectors. Originators must work to find every loan available. Many have wisely turned to mortgage fundamentals like strong relationships with referral partners such as real estate agents.
Loan originators have been beholden to agents for referrals for a long time. And, aside from a free lunch and a rate sheet – as well as the promise to provide great service to an agent’s customers – originators have had less power in that relationship as a matter of practicality. Realtors usually find out first that a customer is in the market for a home.
Now, though, advances in technology have begun to turn the tide. Originators can now help realtors by referring business to them, a shift that encourages realtors to work even more closely with originators. Loan officers’ technology has become a realtor’s opportunity to build customers for life.
Origination Volume Dependency
Why have lenders been so dependent on realtors for referrals and origination volume? Part of it is lenders’ abysmal retention rates. They need brand new customers each year because they are transactional and earn no repeat business from about 80% of past borrowers.
Upon reading that, lenders might blame borrowers’ lack of loyalty on rate shopping, especially for refinances. But, before you decide that there is nothing a lender can do to improve retention, consider that loyalty also is low for purchase mortgages. Industry data from 2019, before the refinance boom, shows retention rates were dropping to below 20%, a low point not reached since before the 2008 mortgage bust.
It is also not customer dissatisfaction with lenders’ service. Across the board, between 60% and 70% of borrowers polled say their lender provided “satisfactory” or “very satisfactory” service throughout the mortgage process. So, what keeps borrowers from returning to do more business with a lender? Consumers said their lender “never asked me to do more business with them.” And, when a lender did, the messaging was “irrelevant to their needs,” according to a recent study by Cornerstone Advisors.
The mortgage industry has not been idle about improving its ability to engage past borrowers in ways relevant to their situation. In fact, because of new technology developed for that purpose, some lenders have become so good at relevant engagement that they are not only addressing low retention, but they are also becoming a source of referrals back to realtors.
Becoming a Referral Source
Realtors have enjoyed an upper hand historically because who thinks of a lender first when they want to sell a home or search for a new one? Most people begin shopping for homes online and connect with a realtor that way, or they request a search from their realtor. The realtor then refers to lenders they prefer.
Fortunately for lenders, realtor home searches require price ranges. And buyers usually determine price range based on a mortgage payment, information best provided by a lender. What is more, borrowers also often apply for credit to learn their mortgage rate and payment, even before they list their old home. Since applying for credit is a trackable action – especially for lenders with established credit relationships with borrowers – loan officers can identify customers in the market, and they may even engage them before a realtor partner.
Lenders also now can catch new home listings from their borrowers on the multiple listing service (MLS) – another technological advancement that affects how loan originators relate with realtors. Before, with a referral from an agent, lenders may never learn their customers were in the market. Knowing that a customer listed their home offers a loan officer a chance to reach out, putting the lender back in the running to provide financing.
Knowledge of customer activity is the real game changer. Before, realtors controlled the leads and even information about those leads. Data now allows lenders both to know and to engage, and it can make them into referral sources and increase their connection with past customers.
Doing the Math
Hundreds of mortgage originations await because technology allows originators to refer to realtors.
For every 100,000 contacts monitored in a mortgage or banking database, lenders are discovering around 2,500 additional mortgages per year, according to a calculator published by Total Expert. At an average $250,000 loan amount, 2,500 additional mortgages translate to about $625 million in loan volume.
Return business also costs much less. Mortgage leads can cost between $800 and $1,200 per loan. Consider how much it would cost to replace 2,500 loans not retained from a lender’s database. Lenders have a clear incentive to solve their retention challenges. It offers both cost savings and revenue growth.
What if a portion of those 2,500 loan opportunities also became referrals to partner agents? Loan originators would become much more than co-marketing partners or great service providers to borrowers. They become indispensable to realtors who know that growing their franchise depends on developing customers for life.