Borrower retention strategies that worked a few years ago won’t cut it in today’s mortgage market. But it’s not the low interest rate environment, a lack of branding or an inferior digital mortgage application process that is driving consumers to other lenders. It’s data — or lack thereof.
The absence of data — or having stale, saturated or antiquated data — is leading mortgage lenders and originators to chase after consumers much too late into the sales funnel. Consequently, lenders have watched their retention rates plummet. Only 18% of the 2.8 million U.S. homeowners who refinanced in fourth-quarter 2020 were retained by the same servicer, the lowest quarterly share on record, according to Black Knight.
To combat these falling numbers, marketers are turning to technological advancements that are creating “better” data. Few mortgage companies have tapped into the potential of these unique new datasets, despite their ability to help lenders and originators make better marketing decisions. This untapped potential can truly revive their client-retention marketing strategies.
Stated another way, the goalposts for identifying which consumers are in the market for a home loan have moved up earlier in the homebuying journey. This allows lenders to capture the would-be borrower’s interest during the crucial first moments when the consumer begins their initial online research rather than waiting for the trigger of a Multiple Listing Service alert.
Lenders that have prioritized the onboarding of new data from third-party vendors are experiencing successful client-retention efforts at a time when the industry average is historically low. New data is the fuel that powers microtargeted and personalized marketing, which set up lenders and originators to increasingly thrive when markets shift.
Massive data growth
How big is the world of data? Really big — and growing at an exponential rate. Consider the fact that more digital data has been created in the past three years than in the entire history of the human race.
As of 2013, PwC reported that the digital universe of accumulated data was 4.4 zettabytes in size, which is equivalent to 1 trillion terabytes. For context, Google, Dropbox and other companies typically sell two terabytes of data storage for about $10 per month.
With the pace of technology advancing at an incredibly fast rate, massive growth is occurring in global accumulated data. To further this point, the 4.4 zettabytes of data in 2013 increased ten-fold seven years later to 44 zettabytes, according to PwC.
The world is in the midst of a data transformation and there is an abundance of available information that can guide mortgage lenders to making better marketing decisions. Yet many in the industry are still unaware of the tectonic shift happening around them.
Time for change
Times have changed, which means marketing strategies need to change. Retaining clients is a continuous game of finding ways to stay ahead of the competition, and it involves getting in front of the consumer at the right time (when they are first considering a new mortgage) to deliver the right message and capture their attention. This means getting to them first and influencing their purchase journey so they originate their next mortgage with you when they are ready.
A decade ago, retention was an easier game to play. Black Knight reported that the average client-retention rate for refinances in 2011 was 44%, substantially higher than today’s 18% figure. At that time, there were only a few third-party vendor datasets available for lenders to leverage.
The rest of the data used for modeling purposes — such as identifying which borrowers were most likely to pay off their mortgage and get a new loan — was information the lender had in its own database. Retention rates were comparatively high because lenders had the necessary information about their own clients to recapture them. This simply isn’t the case anymore.
Effective reactions
Today, being able to compete at a higher level and achieve better-than-average retention rates boils down to two factors: using current data to learn more about the consumer and harnessing technology to react effectively when the time is right. One doesn’t work without the other.
Also, if the quality of the data or the quality of the technology that is driving a mortgage company’s marketing campaign isn’t strong enough, then there will be significant struggles in achieving the end goal of high client retention. Data sources need to provide clarity at the individual consumer level to effectively drive a properly microtargeted, personalized engagement strategy that impresses the consumer.
Data-as-a-service companies are making it easier for lenders to tap into these new datasets. As mentioned, however, not all data is created equally. The leveraging of behavioral datasets widens the view of the consumer. Behavioral data intelligence can connect to known consumer desires and needs, and it is based on actual consumer behavior, not guesswork.
Inherit the future
This past year has been an extraordinary one for mortgage originators. To say the industry has dramatically changed is an understatement. Previous origination records (such as the estimated $1.1 trillion in third-quarter 2020 volume, the first trillion-dollar quarter since 2003, according to the Mortgage Bankers Association) were shattered because of the incredible tailwinds created by the pandemic-driven low interest rate environment.
Today, a major challenge for the industry is client retention on the servicing side of the business. As rates rise, there also will be challenges for the originations side of the business. Many lenders recently made significant investments in new employees to keep up with demand. These companies will have to significantly improve their strategies for attracting new clients so that they can bring in enough business to avoid making tough personnel decisions.
As data and technology come together to sharpen the view of the consumer, the best methods of outreach to increase retention rates can be determined. This dynamic duo of data and tech can help lenders identify behavior patterns, such as the level of consumer intent, the time of day the consumer typically shops, how frequently they shop and the specific journey they’re on. This evolution in consumer behavior identification and classification allows for better engagement and better results.
Author and philosopher Eric Hoffer wrote that, “In a time of drastic change it is the learners who inherit the future. The learned usually find themselves equipped to live in a world that no longer exists.” Mortgage professionals should develop the same mindset during this important time for the industry. ●
