U.S. Mortgage Lending: Strategies to Gain Share in The New Normal - A CG study finds banks are missing an opportunity to increase their mortgage ...

 
U.S. Mortgage Lending: Strategies to Gain Share in The New Normal - A CG study finds banks are missing an opportunity to increase their mortgage ...
U.S. Mortgage Lending:
Strategies to Gain Share in The New Normal
A CG study finds banks are missing an opportunity to increase
their mortgage business by 79% with their current customers

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U.S. Mortgage Lending: Strategies to Gain Share in The New Normal - A CG study finds banks are missing an opportunity to increase their mortgage ...
Table of Contents

Introduction.......................................................................................................................................................................... 3

The Mortgage Market Outlook ........................................................................................................................................ 4

Understanding How Consumers Think About the Mortgage Application Process................................................. 5

Challenges and Demands in The New Normal.......................................................................................................... …8

Why Primary Banks Are Not Capturing Market Share................................................................................................. 9

Let the Voice of the Customer Be Your Guide............................................................................................................. 10

Four Key Strategies to Gain Share in The New Normal ............................................................................................ 13

Summary.............................................................................................................................................................................14

Research Methodology and Demographics ................................................................................................................ 15

U.S. Mortgage Lending: Strategies to Gain Share in the New Normal | © Carlisle & Gallagher Consulting Group. All Rights Reserved.
U.S. Mortgage Lending: Strategies to Gain Share in The New Normal - A CG study finds banks are missing an opportunity to increase their mortgage ...
Introduction
                                                                         What is The New Normal?
    “The New Normal,” is a term that William H. Gross
    coined in 2009 to define the economic landscape                      After four solid years of scrutiny and heavy gov-
    for years, or decades, to come. Gross told Forbes
                                                                         ernance by external third parties, the new state of
    Magazine that our future will likely include a lowered
                                                                         the lending industry is about continuing organic
    living standard, high unemployment, stagnant
    corporate profits, heavy government intervention in                  customer growth while managing an increasingly
    the economy, and disappointing equity returns.                       complex set of credit and compliance risks.

    “When we apply this definition of The New Normal
    to mortgage and consumer lenders, a group that is                    ”But at the end of the day, acquiring new customers,
    consumed with unprecedented challenges since the                     providing good customer service, and retaining those
    foreclosure and loan modification crisis, we see a                   customers is still the most important thing lenders do
    fundamental change taking place right now,” says Tom                 every day,“ CEB TowerGroup senior research director
    Mataconis, vice president of consulting and practice                 Craig Focardi.
    services, Carlisle & Gallagher Consulting Group (CG).
                                                                         The question is: Are lenders too busy recovering
    “There is a power shift from banks to customers, who
                                                                         from being battered in the U.S. housing bust and
    are demanding choices and more transparency into the
                                                                         subsequent financial crisis to retain and deepen
    mortgage application process. This shift makes it nearly
                                                                         existing customer relationships?
    impossible for lenders to sustain differentiation based
    solely on price or product. Trust and customer service               This factoid may provide the answer: People are
    are the key differentiators that will allow banks to gain            so frustrated with their banks that they would consider
    market share in The New Normal.”                                     going to Walmart (NYSE: WMT) for a mortgage if
                                                                         they could. The majority of these customers do not
    In CG’s work with 5 of the top 8 lenders in the U.S.,
                                                                         have their mortgage with their primary bank. Banks
    there has been an urgent need to help them address
                                                                         are missing an opportunity to increase their mortgage
    critical industry mandates and build new capabilities
                                                                         business by 79% with their current customers. These
    to achieve operational excellence. What has not been
                                                                         are three key findings of the “U.S. Mortgage Lending:
    addressed is how these big U.S. banks can leverage
                                                                         Strategies to Gain Share in The New Normal” study,
    their investment in regulatory responses to tackle
                                                                         conducted by Carlisle & Gallagher Consulting Group
    customer dissatisfaction and gain market share in
                                                                         (CG, www.carlisleandgallagher.com), a management
    The New Normal.
                                                                         and technology consulting firm serving the financial
    The New Normal brings implications for lender                        services industry.
    strategies and technology investment, how you run
                                                                         CG surveyed 618 U.S. consumers online in September
    a business, and what you offer your customers.
                                                                         2012 to gain better insight into the voice of the
    These challenges include:
                                                                         customer and provide strategic direction to its clients.
    • Scattered intellectual capital inside lending                     Our survey sought to answer:
      institutions due to competing priorities
                                                                         • What is the current view toward home ownership?
    • High purchase and refinance demand driven                         • How have recent changes in the mortgage industry
      by record low rates and government assistance                        impacted the application experience?
      programs that have led to elongated cycle times and
                                                                         • What factors are most important in the
      customer dissatisfaction
                                                                           mortgage process?
    • Increased regulatory compliance, designed to                      • Would customers be willing to pay more for a
      protect consumers and stabilize the financial                        mortgage?
      system, is further complicating lending business and               • Would consumers be willing to consider an
      technology operations                                                alternate mortgage provider?
                                                                         • What do primary banks need to do to add
                                                                           market share?

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U.S. Mortgage Lending: Strategies to Gain Share in The New Normal - A CG study finds banks are missing an opportunity to increase their mortgage ...
The Mortgage Market Outlook
                                                                                 Study Results at a Glance
    CG’s study shows that homeownership confidence
    is high — with 90% of respondents expecting their                            • Half of U.S. homeowners expect their home
    homes to maintain value or grow significantly over                             to grow and deliver significant value
    time (see Figure 1), and 1 in 5 consumers expecting
    to purchase a home in the next 3 years.
                                                                                 • One-third of consumers are willing to pay
                                                                                   more for a mortgage if it comes with superior
    Validating CG’s findings, the Fannie Mae National                              customer service
    Housing Survey of October 2012 shows similar
    numbers, with 72% of respondents saying it is a                              • Primary banks are missing an opportunity to
    good time to buy a home. Additionally, the Fannie                              increase their mortgage business by 79%
    Mae “Own-Rent Analysis” reported that the 2011                                 with their captive customers
    National Housing Survey shows that homeownership
                                                                                 • 1 in 3 consumers would consider a mortgage
    still appeals to the majority of Americans, with 85%
                                                                                   from Walmart
    of respondents saying owning makes more sense
    than renting financially over the long term and 64%                          • 80% of consumers would consider
    saying that, if they were going to move, they would                            a non-bank for their next mortgage
    buy a home.

    According to MBA Mortgage Finance, mortgage
    originations are forecasted to contract in 2013.
    Refinance volume will decrease from 68% of
    total originations to just 40%. Purchase volume
    is forecasted to increase, making up 60% of total
    originations. When we compare CG’s study data with
    MBA Mortgage Finance volume data it is clear that
    the pipeline is in the process of shifting away from
    refinancing of existing homes toward the purchase
    of new homes.

    Home Ownership Confidence is High
    Expected Financial Return on Home

    Figure 1

    Q12: Which of the following best describes your expected financial return on your home?

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U.S. Mortgage Lending: Strategies to Gain Share in The New Normal - A CG study finds banks are missing an opportunity to increase their mortgage ...
Understanding How Consumers Think About                                       percentage rate (APR), and maintaining a variety of
    the Mortgage Application Process                                              product offerings.
    Clearly, buying a home is still a pillar of the American                      The CG study also found that there is a distinct group
    dream. But how do consumers approach the                                      of customers who value service and relationships,
    mortgage application process? And how do they                                 and are willing to pay more for it. Thirty-four percent
    decide who to work with?                                                      of consumers (referred to as the “Pay More” group)
                                                                                  are willing to hand over more money for a mortgage
    CG’s survey shows that cost, trust in the financial
                                                                                  if it comes with superior customer service. Fifty-two
    institution, and quality customer service are the
                                                                                  percent of these respondents are willing to pay a
    top three most important factors in the mortgage
                                                                                  premium to complete the mortgage process more
    application process (see Figure 2). In fact, cost
                                                                                  easily. And, 39% of Pay More respondents are willing
    remains king for new mortgages and refinancing with
                                                                                  to pony up to use their primary bank. See Figure 3.
    84% of respondents rating cost as the number one
    most important factor in the mortgage process.                                Convenience, access, advisory, trust, speed, and
                                                                                  predictability come into play with many applicants;
    A Forrester Research report, “What Drives Retention
                                                                                  however with the Pay More group these elements are
    and Sales in U.S. Banking,” found similar factors that
                                                                                  more prevalent. This group tends to value customer
    drive customer acquisition and retention. Among
                                                                                  relationships and wants to be treated as preferred
    all factors that drive acquisition and retention,
                                                                                  customers. It’s also interesting to note that the
    trustworthiness came out on top, followed by low (or
                                                                                  demographics of the Pay More group shift toward the
    no) fees, customer service, good mobile and online
                                                                                  younger millennial segment and are not biased toward
    banking service, and generous rewards. Lower on the
                                                                                  income levels.
    scale was having many locations, offering a low annual

    Most Important Factors in the Mortgage Selection & Application Process

    Figure 2

    Q39: Which of the following factors are most important in the mortgage application process? Choose up to five.

5   U.S. Mortgage Lending: Strategies to Gain Share in the New Normal | © Carlisle & Gallagher Consulting Group. All Rights Reserved.
U.S. Mortgage Lending: Strategies to Gain Share in The New Normal - A CG study finds banks are missing an opportunity to increase their mortgage ...
34% of Respondents Will Pay More for                                  Most Painful Issues
    Superior Customer Service
                                                                            Mortgage Application Process

                                                                            • High Cost: 66%

                                                                            • Slow Execution: 56%

                                                                            • Difficult Communication: 32%

                                                                            • Unable to Track Application Status: 31%

                                                                            • Untrustworthy Advice: 26%

                                                                         Figure 4

                                                                         Q41: Which of the following factors are considered to be the most
                                                                         painful aspects in the mortgage application process? Choose up to five.

                                                                          Banks Beware

                                                                          CG’s study uncovers an increasing demand for
                                                                          alternative lenders:

    Figure 3
                                                                          • 80% of U.S. consumers would consider
                                                                            a mortgage from a non-bank
    Q49: Are you willing to pay more for a mortgage product if it
    comes with superior customer service?                                 • 1 in 3 consumers would consider a
                                                                            mortgage from Walmart
    Consumer Frustrations with the Mortgage Process
                                                                          • 48% would consider a mortgage from PayPal
    We’ve established that a) consumer demand for
    homeownership is strong and b) they have distinct
    opinions regarding what’s important during the
                                                                         Shifting Customer Service Expectations
    mortgage selection and application process. Now the
    question becomes: who can deliver what they want?                    Let’s look more closely at customer service. While the
                                                                         speed of execution (or lack thereof) causes consumers
    CG’s study shows that consumers want choices from                    the most pain when it comes to customer service,
    alternative lenders. Why? It comes as no surprise                    communication challenges also make consumers
    to learn that, given the recent mortgage mess,                       gnash their teeth. In fact, in CG’s survey “difficult
    consumers have a trust issue with big banks (See                     to communicate with” was the #2 customer service
    “Banks Beware” sidebar). Twenty-six percent of our                   complaint. Add complexity of products (27%) and
    survey respondents cited untrustworthy advice as a                   difficulty completing the application requirements
    painful aspect of the mortgage application process.                  (28%) as painful aspects of the mortgage application
    But their issue with banks goes beyond trust. Our                    process to the mix and there could be more trouble
    survey indicates that the following factors are also                 from a communication standpoint.
    considered to be painful parts of the mortgage                       So, what changes would consumers like to see?
    application process for consumers: cost, slow                        Here’s how it shakes out:
    execution, difficult communication, and inability to
    track the application status (see Figure 4).                         • Direct access: When we asked customers how they
                                                                           would prefer to interact with their lender during the
                                                                           mortgage application process, 69% said they want

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U.S. Mortgage Lending: Strategies to Gain Share in The New Normal - A CG study finds banks are missing an opportunity to increase their mortgage ...
direct access to a mortgage representative.
                                                                         CG Recommendation
     This need for direct access comes as no surprise
     since 53% of the respondents in CG’s survey view                    To improve customer retention, don’t forget bank
     homeownership as their most important financial                     branches and call centers. The banks that will
     investment.                                                         win at customer retention and acquisition will be
    • Multiple channels: Direct access is only part of                  those that have realigned resources to master
      the story. Customers also want multi-channel                       the channel game, recognizing that new digital
      communication that is personalized, supplies real                  channels are complementary and not a replace-
      time data, gives them instructions, and provides                   ment for older contact points.
      status updates on the mortgage application process.

    To meet the need, Gina Sverdlov, a Forrester Research
    analyst suggests banks keep one foot firmly planted in
    the future and one in the past, forging a cross-channel              Case in Point: USAA Multi-Channel Initiative
    sales and service culture that can equally swing                     Retains Customers
    between mobile, web, and more traditional venues
                                                                         USAA, an institution that focuses heavily on mili-
    such as phone calls.
                                                                         tary personnel and their families, has embarked
    Yes, phone calls. According to Sverdlov, phones
                                                                         on a number of new channel initiatives, including
    are still a primary means of connecting with banks,
                                                                         video access to customer service from remote
    even for customers who are tech savvy. “There’s
    been a lot of attention placed on mobile and online                  locations and low bandwidth web banking for
    channels. While that’s important, markets should not                 military members that are stationed overseas.
    forget offline channels,” Sverdlov says, adding that
                                                                         The institution is also developing voice recogni-
    nearly a third of U.S. adults who are active online still
                                                                         tion technology. Called Nina, the voice recogni-
    use traditional channels such as phone calls when
    attempting to solve a service problem with their bank.               tion is similar to Apple’s Siri: users make a vocal
                                                                         request through the app, which is processed
    • Consistency across channels: Customers expect
                                                                         by Nuance. Nuance’s natural language software
      the same level of personalization, intelligent advice,
      and product recommendations from digital banking                   processes the requests, then sends a response to
      channels as they’ve come to expect from their                      the mobile application.
      favorite branch associate, according to Devon                      Additionally, USAA is expanding its network of
      Kinkead, CEO of Micronotes, a digital marketing
                                                                         financial centers that include two-way video and
      company that provides tools and technologies to
                                                                         other technology that connects the institution’s
      financial institutions. CG’s study supports this notion.
      People know what good salespersonship looks like in                members to customer service. “We find the
      the physical world. “If you are an existing customer,              more [members] take advantage of these tools,
      the salesperson comes to the meeting having                        the more they want to keep doing business with
      looked at your accounts and given some thought                     us,” says Wayne Peacock, executive vice presi-
      to what questions to ask,” said Kinkead. “Then the
                                                                         dent of member experience at USAA.
      salesperson asks you a few questions and formulates
      options, from which you may choose, and helps you
      implement that solution. It’s intelligent, it’s personal,
      and it works. As customers continue to flock to the
      digital banking channels, they will expect this same
      level of service.”

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U.S. Mortgage Lending: Strategies to Gain Share in The New Normal - A CG study finds banks are missing an opportunity to increase their mortgage ...
Challenges and Demands in the New Normal
    Mortgage demand is presenting major challenges
    for U.S. banks, who are frustrating customers with                   CG Recommendation
    increased mortgage processing timelines, according
    to CEB TowerGroup analyst. Although these big U.S.                   Leverage your investment in regulatory response
    banks are hiring mortgage bankers by the thousands                   to address the customer needs. Instead of sim-
    to meet the surge in demand for originating home                     ply meeting the mandated terms, listen to what
    loans and refinancing, they are still struggling to                  your customers are asking for and give them
    process applications and communicate with customers                  what they want while leveraging the funding
    in a timely manner. What used to be a 30 to 60 day
                                                                         for addressing regulatory change. Delight your
    process has stretched to 90 days or more. Why?
                                                                         customers with faster execution to close mort-
    There are five other key problem areas:                              gages, improved and proactive communication,
    1. Scattered intellectual capital across key and                    and the ability to track the status of their
       ancillary functions. Given banks’ competing                       mortgage application.
       priorities, they are conflicted about where to focus
       their human resources. For instance, banks are
       grappling to address the shift of key resources from
                                                                         3. Lack of process standardization. Rapid regulatory
       originations to servicing.
                                                                            change and dramatically altered product options
    2. V
        olume demand variability (i.e. increased                           have led to fragmented processes or antiquated
       capacity). Many lenders are still trapped in a fixed                 resource support. Models also have a downstream
       cost infrastructure in the face of highly variable                   effect on abilities to report accurately, efficiently,
       industry dynamics. Whether programs (i.e. HARP                       and completely.
       2.0) or other refinance options, lenders also face
                                                                         4. Lack of technology investment. With inadequate
       increasing government incentive / scrutiny to
                                                                            time for technology implementations, banks are
       elevate volumes to levels unsupportable by current
                                                                            utilizing low cost, minimally skilled labor to execute
       operational models. This can lead to: increased
                                                                            critical functions (aka ‘brute force’).
       origination costs and cycle times, process quality
       deterioration, and service level goal misalignment.               5. Shifting customer expectations. Customers are
                                                                            demanding more transparency in the process.
                                                                            They expect multi-channel communication to
     Reality Check
                                                                            supply real time data, instruction, and status.
      What Mortgage Customers Want

      ”There is a shift into what customers want.
      They’ve moved away from wanting more
      complex products into more fixed interest rates
      and defined terms.“

       Doug Hautop
       Lending Practice Leader
       Carlisle & Gallagher Consulting Group

       As seen on CNBC The Closing Bell – Walmart/PayPal
       Mortgages – December 7, 2012

8   U.S. Mortgage Lending: Strategies to Gain Share in the New Normal | © Carlisle & Gallagher Consulting Group. All Rights Reserved.
U.S. Mortgage Lending: Strategies to Gain Share in The New Normal - A CG study finds banks are missing an opportunity to increase their mortgage ...
Why Primary Banks Are Not Capturing                                  CG’s study results reveal why:
    Market Share                                                         • 75% of customers do not have a specific person
    Eighty-one percent of survey respondents have                          at their bank that they seek out for guidance and
    strong satisfaction levels with their primary bank                     assistance, according to CG’s study. Banks have
    (the bank with which they do the majority of their                     worked to remove the 1:1 relationship in the name of
    business), but only 39% have their mortgage with                       speed and cost, but in doing so they have removed
    their primary bank.                                                    the sense of community and trust. This has also led
                                                                           banks to rely on technology to mine customer data
    What’s striking is this fact: 70% of respondents
                                                                           instead of allowing sales people to make connections
    would prefer to have their mortgages with their
                                                                           and incubate customer relationships.
    primary bank.
                                                                         • Customers have a low level of satisfaction with their
    The big takeway? Primary banks are missing an
                                                                           primary bank’s costs and products and services as
    opportunity to increase their mortgage business by
                                                                           seen in Figures 4 and 7. People seek competitive
    79% with their current customers. See Figure 5.
                                                                           interest rates. Often times when they call their
                                                                           primary bank to lock in on a great rate, the call center
    Primary Banks Are Missing Their Fair Share                             is not able to provide the rate the customer wants.
    of the Mortgage Market
                                                                         • Customer service — an area where banks can
                                                                           differentiate — ranks lower on the list of primary
                                                                           banks’ features (see Figure 7). Customers want,
                                                                           but are not getting, direct access to a mortgage
                                                                           representative, multi-channel communication that is
                                                                           personalized, and consistency across channels.

                                                                         Most Customers Have a High Degree of
                                                                         Satisfaction with their Primary Bank

    Figure 5

    Q53: Would you prefer to have your mortgage with one of
    your major banks?

    CG Recommendation

    Customers want the stability and trust factor of
    their large primary bank, but will only be retained
    if that bank provides a customized service. This
    simplistic customization is based on where they                      Figure 6

    fall on the continuum of cost, trust, and service.                   Q39: What is your degree of satisfaction with your primary bank?
    See page 13 for tactics you can employ to make
    it easy for customers to do business with you.

9   U.S. Mortgage Lending: Strategies to Gain Share in the New Normal | © Carlisle & Gallagher Consulting Group. All Rights Reserved.
U.S. Mortgage Lending: Strategies to Gain Share in The New Normal - A CG study finds banks are missing an opportunity to increase their mortgage ...
What is your degree of satisfaction with
     you primary bank?

                                                                           CG Recommendation

                                                                           Banks have the data to know and understand
                                                                           their customers. Use it to deepen customer
                                                                           relationships and talk to customers before they
                                                                           start shopping for their next mortgage.

                                                                             advisor/sales person, and prefer to be treated as a
                                                                             unique customer. 44% of Bond Builders are willing
                                                                             to pay more for superior customer service.

                                                                          3. Planners: Consumers who want to understand
     Figure 7
                                                                             expectations and requirements for the closing
     Q34: For your primary bank, please rate your level of satisfaction
                                                                             process, prefer simple mortgage products, and want
     with each of the following (1- no satisfaction at all, 5- highest
     satisfaction                                                            ease in completing the mortgage application.
                                                                             50% of Planners are willing to pay more for superior
                                                                             customer service.
     Let the Voice of the Customer Be Your Guide
     CG’s study uncovered a crucial action item for banks:                Each profile has different priorities for what they value
     target customers based on what they value in the                     in the mortgage process as seen in Figure 9.
     mortgage process vs. using traditional bank-defined                  For all three segments, cost remains king when it
     segments of asset or relationship level. This new                    comes to new mortgages and refinancing, but CG’s
     approach is critical to the success of banks that seek               study shows that it’s a lot more complicated than just
     to capture their share of mortgage business in The                   low interest rates. “You cannot just segment your
     New Normal.                                                          customers based on your data models and throw
     Let’s turn to what revised segmentation might                        price at them,” said CG’s lending practice leader
     look like…                                                           Doug Hautop. “To grow share, you must segment your
                                                                          customers by the way they see themselves and the
     CG’s study found three distinct profiles of consumers                way they want to interact with you — and then price
     who value customer service and trusted relationships                 and service them appropriately.”
     — and are willing to pay for it: Cost Conscious, Bond
     Builders, and Planners (see Figure 8).

     1. Cost Conscious: Consumers who place the most
        importance on cost, the time-to-close factor,
        and the simplicity of completing the mortgage
        application. 27% of Cost Conscious consumers are
        willing to pay more for superior customer service.

     2. B
         ond Builders: Consumers who value trust in their
        financial institution and trust in their mortgage

10   U.S. Mortgage Lending: Strategies to Gain Share in the New Normal | © Carlisle & Gallagher Consulting Group. All Rights Reserved.
Our Analysis Found Distinct Profiles for Mortgage Preferences

       Cost Conscious                            Bond Builders                               Planners

     Figure 8

11   U.S. Mortgage Lending: Strategies to Gain Share in the New Normal | © Carlisle & Gallagher Consulting Group. All Rights Reserved.
Each Segment Has Different Priorities for What They Value in the Mortgage Application Process

                          Figure 9

                          Q39: Which of the following factors are most important in the mortgage application process? Choose up to five.

     CG Recommendation

     Focus on the Cost Conscious, Bond Builder, and Planner market segments as defined by consumer value to match
     your target market. Segmentation strategies of the past (i.e. relationship-based segmentation or asset-based
     segmentation) will not allow lenders to personalize offerings to the level required to retain and deepen customer
     relationships. Don’t leave market share and margin on the table.

12   U.S. Mortgage Lending: Strategies to Gain Share in the New Normal | © Carlisle & Gallagher Consulting Group. All Rights Reserved.
Four Key Strategies to Gain Share in
     The New Normal
     CG’s research echoes much of what we have seen
     in our consulting work. Based on the research data
     and our experience in consulting with the top U.S.
     lenders, we believe there is significant opportunity for
     firms to acquire and retain mortgage customers. But,
     with globalization and the Internet providing nearly
     unlimited choices, power has shifted from banks to
     customers. Let there be no doubt: the customer is
     now calling the shots.

     So what should lenders do come Monday morning?
     Here are four CG recommendations for banks to gain
     share in The New Normal:

     1. Focus on Cost Conscious, Bond Builder, and
        Planner Market Segments                                              The contraction in the market, combined with
        Let your customers have it their way. While cost                     an increase in purchase volume, is forcing banks
        is very important, you don’t need to be bottom of                    to realign resources. Many resources that are
        the barrel on pricing. A third of survey respondents                 knowledgeable in purchase originations are now
        are willing to pay more money for trustworthy                        working in refinance or default servicing. They
        advice, speed, relationships, and the right products.                need to understand the requirements when
        Our study identified three distinct segments of                      moving from refinance/MHA to full document
        consumers who value customer service and trusted                     purchase loans. These loans, which require
        relationships and are willing to pay for it: Cost                    multiple third party integration points and heavier
        Conscious, Bond Builders, Planners (see Figure 8).                   communication routines, move faster and involve
        CG advises mortgage firms to target customers                        more people. Missing the closing date has more dire
        and customize their service offerings based on                       consequences.
        what they value in the mortgage process — rather
        than by traditional bank-defined segments of asset                   To increase loan applications and improve
        or relationship level. This is the key to success in                 pull through, lenders must align resources for
        acquiring and retaining mortgage customers while                     cross-channel sales and service according to
        optimizing your margins.                                             customer preferences. Customers expect the
                                                                             same level of personalization, advice, and product
     2. Realign Resources and Streamline Operations in                      recommendations whether they contact a lender at
        The New Normal                                                       a branch, on the phone, through email, via a mobile
        Historically low rates created a massive refinance                   application, or online.
        volume that lenders were not staffed to support.
        This led to elongated cycle times and broken                         Defining and executing repeatable processes and
        communications, creating customer dissatisfaction.                   procedures that are consistent with and support
        Our study shows that the most painful aspects of                     your firm’s vision, direction, and policies will improve
        the mortgage application process from a customer                     operational efficiency and shorten cycle times,
        service perspective are slow speed of execution                      delighting your customers.
        followed by difficult communication (see Figure 4).

13   U.S. Mortgage Lending: Strategies to Gain Share in the New Normal | © Carlisle & Gallagher Consulting Group. All Rights Reserved.
CG believes the door to market share is open for those               4. Leverage the Investment in Regulatory Response
     banks who invest in retraining and hiring in the areas                  to Address the Voice of the Customer
     of sales and fulfillment, and invest in high-quality                    While complying with regulations is a necessary
     processes and effective loan procedures. In parallel, CG                evil, CG’s study proved that it is not necessarily
     recommends exploring outsourcing or other alternate                     helping banks please their customers. Seventy-
     processing models of non-core lending functions                         seven percent of survey respondents believe that
     to allow banks to maximize their ability to meet the                    regulatory changes will have a worse or no impact
     lending demand. Additionally, the ever-evolving loan                    on the mortgage process. CG believes that banks
     servicing process model now features non-linear                         have an opportunity to address the issues of cost,
     components, not unlike the loan fulfillment side of                     complexity, transparency, and traceability while
     the equation. Market leaders will find a way to best                    complying with regulations.
     leverage common technology to bridge the two core
                                                                             Instead of simply meeting the mandated terms,
     functions when applicable; cost savings and human
                                                                             listen to what your customers are asking for and
     capital concentration in core lending functions will be
                                                                             give them what they want while leveraging the
     the result.
                                                                             funding for addressing regulatory change. For
     3. C
         apitalize on Market Share Opportunities for                        example, banks will be required to comply with the
        Primary Banking Customers                                            Consumer Financial Protection Bureau’s (CFPB)
        Our study shows that most customers have strong                      new Qualified Mortgage regulations, giving them an
        satisfaction levels with their primary bank, and                     opportunity to improve on technology and process
        would prefer to have their mortgages with their                      points while they are already under the hood.
        primary bank. Yet, surprisingly, most customers do
        not have their mortgage with their primary bank.                  Summary
        CG believes that banks can increase their mortgage
                                                                          Current mortgage loan profitability is obscuring
        business with their current customers by simply
                                                                          and delaying the necessary process and technology
        making it easy for customers to do business with
                                                                          changes needed to maintain revenue and margin
        them. A few tactics to employ include:
                                                                          levels at banks. With the decrease in application
       • Using technology investments to provide                         volume forecasted in 2013 and the shift to a purchase
         mobile data capture capabilities, thereby                        money market, banks will have no choice but to retain
         making document-gathering less intrusive                         and grow their current customer base to remain
                                                                          competitive.
       • Mining data on existing customers and
         cross-selling targeted mortgage service                          In The New Normal, there is a fundamental power shift
         offerings to them based on what they value                       from banks to customers. CG believes that banks that
         in the mortgage process                                          embrace this change and take the necessary time to
       • Driving customers toward the distribution                       listen to their customers’ wants and needs will not
         channel they prefer                                              be caught off guard with surprises. We also strongly
                                                                          believe that this shift makes it nearly impossible
       • Beating brokers to the punch, proactively talking to
                                                                          for lenders to compete only on price and product.
         customers about their next mortgage before they
                                                                          Lenders who focus on trust and customer service as
         express interest
                                                                          differentiators will gain market share.
       • Utilizing online and mobile technologies to allow
         customers to track the status of their mortgage
         applications
       • Communicating proactively with customers during
         the mortgage application process
       • Providing customers with direct access
         to a mortgage representative to improve
         communications

14   U.S. Mortgage Lending: Strategies to Gain Share in the New Normal | © Carlisle & Gallagher Consulting Group. All Rights Reserved.
Research Methodology and Demographics                                Nearly half of the respondents have a household income
                                                                          of $100,000 to $249,999. The study targeted 50% of
     CG conducted a 58-question online survey with
                                                                          respondents to have household income over $100,000
     618 consumers who reside in the United States.
                                                                          and no more than 25% below $50,000. Participants
     The survey was conducted in September 2012,
                                                                          were recruited from an online research panel and were
     and the responses were tabulated and analyzed
                                                                          required to be over 18 years of age. There was an even
     shortly thereafter. The number of people surveyed
                                                                          distribution of respondents across age segments.
     is highly representative of the U.S. population and is
     statistically valid.

     Household Income                                                     Age Distribution
     Overall mix of respondents reflects                                  Even distribution of respondents
     a higher income base                                                 across age segments

     Figure 10                                                            Figure 11

     Q7. What is your household income?                                   Q6. In what age group are you?

     Last Applied for Mortgage
     52% of respondents have purchased a new house or refinanced their home since 2010

     Figure 12

     Q3b: When did you last apply for a mortgage?

15   U.S. Mortgage Lending: Strategies to Gain Share in the New Normal | © Carlisle & Gallagher Consulting Group. All Rights Reserved.
Sources
     1. Wal-Mart Would Love To Have A Banking License, But It Doesn’t Necessarily Need One, International Business Times,
        December 5, 2012, http://www.ibtimes.co.uk/articles/411651/20121205/wal-mart-mortgages-banking-debit-cards-
        wal-mart-canada-financial-services.htm#href=http%3A%2F%2Fwww.ibtimes.com%2Fwal-mart-would-love-have-
        banking-license-it-doesnt-necessarily-need-one

     2. T
         o Improve Customer Retention, Don’t Forget the Call Centers, American Banker, October 29, 2012, http://www.
        americanbanker.com/issues/177_209/to-improve-customer-retention-dont-forget-call-centers-1053947-1.html

     3. U
         se Tech to Boost, Not Bypass Customer Relationships, American Banker, October 26, 2012, http://www.
        americanbanker.com/bankthink/use-tech-to-boost-not-bypass-customer-relationships-1053887-1.html

     4. T
         here’s No Such Thing as the New Normal, New York Times, December 20, 2010, http://bucks.blogs.nytimes.
        com/2010/12/20/theres-no-such-thing-as-the-new-normal/

     5. B
         ack Bay Slated for a New Bank of America ‘Flagship’ Branch, Boston Globe, October 19, 2012, http://www.
        bostonglobe.com/business/2012/10/18/bank-america-plans-least-dozen-new-flagship-branches-back-bay-elsewhere/
        lZom2td1ImstOoPwd5C0vN/story.html

     6. W
         hat Drives Consumers’ Intentions to Own or Rent, Fannie Mae Economic and Strategic Research, August 2012.

     7. C
         onsumer Attitudes About Homeownership, October 2012 Data Release, Fannie Mae Monthly National Housing
        Survey, November 7, 2012.

     8. J
         D Power (2008-2010), Mortgage Bankers Association (2011), CEB TowerGroup analysis

     9. 2
         011 Customer Experience Impact Report, a survey commissioned by RightNow (acquired by Oracle in March 2012),
        http://www.oracle.com/us/products/applications/cust-exp-impact-report-epss-1560493.pdf

16   U.S. Mortgage Lending: Strategies to Gain Share in the New Normal | © Carlisle & Gallagher Consulting Group. All Rights Reserved.
About Carlisle & Gallagher Consulting Group
                             Carlisle & Gallagher Consulting Group (CG) is an award-winning
                             management and technology consulting firm that delivers large-
                             scale, complex solutions for the world’s leading financial services
                             organizations. We help our clients solve their most critical business
                             and technology problems, meet tight deadlines, and plan for future
                             challenges in an industry operating under unprecedented change and
                             competitive pressures. Headquartered in Charlotte, NC, CG is inspired
                             to help our stakeholders succeed – from clients to employees to the
                             communities in which we live and work. For more information, visit
                             www.carlisleandgallagher.com.

                             About CG Lending Practice
                             CG’s Lending Practice is powered by more than 450 experienced
                             professionals, including management consultants, lending operations
                             experts, program and project managers, business analysts, and
                             technology architects. In fact, our practitioners have an average of
                             15 years of lending industry experience that they bring to each client
                             relationship.

                             CG’s Lending Operations services include:

                             • Loan Origination & Fulfillment
                             • Loss Mitigation Remediation
                             • Foreclosure, Bankruptcy, Escrow Review & Correction
                             • Servicing Transfers
                             • Customer Complaint Processing

                             To learn more about our Lending Practice, please visit
                             http://www.carlisleandgallagher.com/expertise/consumer-banking

                             Let’s Get Started
                             To learn more about how we can help you succeed, please contact:
                             Tom Mataconis 					Doug Hautop
                             CG’s VP of Consulting & Practice Services CG’s Lending Practice Leader
                             thomas.mataconis@cgcginc.com              doug.hautop@cgcginc.com
                             704.936.1610 				                         704.301.5142

                             Carlisle & Gallagher Consulting Group
                             212 South Tryon Street, Suite 800
                             Charlotte, NC 28281
                             O: 704.936.1600 | F: 704.936.1631

17   U.S. Mortgage Lending: Strategies to Gain Share in the New Normal | © Carlisle & Gallagher Consulting Group. All Rights Reserved.
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