It’s been a complicated 12-months for the mortgage industry. Mortgage professionals working through the COVID-19 pandemic have been faced with managing a complex duality as they’ve tried to balance the opposing forces of record low interest rates and record high levels of unemployment.
On one side: a 14-year high in new home sales and a 200% annual increase in refinancing volume driving new origination into the stratosphere. On the other: a 14.7% unemployment rate pushing legions of mortgage holders to modify terms and defer payments on existing loans. In the middle: mortgage lenders — themselves displaced from their offices — trying to manage a historic surge in customer volume with digital self-service tools that, more-often-than-not, directed customers to the phone.
This is not the recipe for a world class customer experience. Quite the opposite, it is a formula for slower loan processing times, overloaded and unprofitable call centers and declines in customer loyalty and advocacy.
Missing the mark on digital
Mortgage providers have been lucky that the halo effect of ultra-low interest rates and large scale federal relief efforts have kept most customers pacified during the pandemic. But the experience should serve as a wakeup call for an industry that has struggled to keep pace when it comes to digital self-service tools that meet customer expectations and streamline operational efficiency.
It’s a trend we see clearly across our studies evaluating customer satisfaction with mortgage originators and servicers during the pandemic. On the new mortgage origination side of the equation, customer satisfaction with the competitiveness of interest was the only attribute in our study to show improvement this year. Every other factor — loan processing time, ease of self-service interaction and helpfulness of customer service — showed marked declines. The average time to close a loan refinancing transaction also rose by three days in 2020. Given the significant demands on the industry this past year, that is not a huge gap, but it does illustrate that the increased reliance on digital did not speed things up, as it should have.
Things were worse on the servicing side, where servicers struggled to meet customer demand amid rising confusion and scattered resources. In the months leading up to and during the COVID-19 pandemic, more than three-fifths (62%) of mortgage customers visited their lender’s website for information, but just 28% said they found their servicer’s website to be the most effective channel to resolve an issue. Among those who could not resolve their issue on the lender’s website, 45% said their issues were only solved after picking up the phone to speak with a representative. All told, among all customers who called their mortgage servicer for help, 19% said they struggled to get a live agent on the phone.
A new formula for the new normal
The COVID-19 experience for the mortgage industry is certainly a case study in managing a very challenging set of external variables, but it is also a sign of things to come. Research from McKinsey Digital has already found that 75% of people using digital channels for the first time during the pandemic say they will continue to use them when things return to normal. That’s a really important stat when you consider how poorly mortgage originator and servicer digital channels are performing right now.
Fortunately for the mortgage industry, there is a well-worn path of digital innovators that are proving that digital-first customer engagement can be done effectively. It’s not just Netflix and Amazon who’ve figured it out. Many of the nation’s retail banks, credit unions and direct banks have cracked the code on digital customer experience through their personal loans business lines. In fact, in our most recent analysis of consumer lending providers, we found that 34% of personal loan applications were digital-only, more than any other application channel. What’s more, the digital channel had significantly higher levels of overall customer satisfaction, outperforming face-to-face and phone-based application processes by a margin of ten points or more, on a 1,000-point scale.
What’s happening in personal loans that is not happening in traditional mortgages? The consumer lending providers are making it simple. “Two clicks or less” needs to become the mantra for the mortgage industry as it confronts the digital challenges that have kept it mired in the world of costly and cumbersome phone-based customer support. Servicers need to make basic information that is commonly searched by consumers — information on payment schedules, what to do if you can’t make a payment, information on late payments — easily accessible and complete. Originators need to make it simple to click through the application process without jumping through hoops. Then, this all needs to be tied together with frequent, proactive communication in the form of emails, text messages and updates on progress.
The industry has managed to survive one of the most difficult periods in history. If it wants to thrive, it needs to get serious about digital. Companies cannot afford to keep throwing stop-gap solutions and expensive work arounds at the problem; they need a sustainable digital formula that meets customers where they are.