The Mortgage Conundrum

The mortgage industry has experienced some interesting developments over the past, well, decade-ish, if you will. Most of which have been centered around technology and compliance. The former being adopted to both cut costs and enhance the customer experience, and the latter forcing higher overhead and time traps in the business process. However, this is a problem for mortgage companies internally. The solutions applied to these two major elements of mortgages creates differentiators in a saturated industry where competition is stiff.

The conundrum occurs once the mortgage process turns outward, to the consumer.

• From a consumer standpoint, mortgages offer two things - 1) interest rates, and 2) a customer experience.
• From a lender's standpoint, we need to show a quality rate - knowing always being the lowest comes with a completely different business model, and show why the lender's business process is going to be the most efficient.

These two elements can be hard to reconcile into an absolute best decision for a consumer.

Interest rates, ohhhhh interest rates...what a conversation. Let's first be clear, getting the lowest possible interest rate is a top priority for anyone taking a large, long-term debt. It certainly should be. Ignore stats; that's simply common sense. So lenders have an obligation to keep rates as low as possible. However, businesses run at a cost. Those interest rates come with an amount of money the lender gets in order to cover those costs. The customer doesn't care about this, to be frank. And technically, it's not their problem anyway. This is the customer's mortgage, and not their mortgage company. They bear the burden of repayment, so they need to get the best terms they can. They can't worry about what costs a lender absorbs as it scales, nor should they. So should the customer choose a lender based on the lowest possible rate? As enticing as it will feel to the customer, the answer is actually - no.

This takes us to our next part, the customer experience. Showing a customer an interest rate is easy. What the customer does not see is the roughly 25 people involved in a mortgage transaction from end to end. They don't see the day re-negotiations have to occur and lenders have to be quick to pivot. They don't see the dozens of small details a processor has to prepare, cross-reference, double-check, and then the underwriter combing the loan for accuracy of federal and agency guidelines. They don't see the influx of volume that occurs from time to time, creating after-hours work by Loan Officer, processor, underwriter, post-closer, and others, who work the make sure the customer doesn't have to see any of this. They don't see the coordination between title attorney's realtors, appraisers, and secondary market transfers. They don't see the tech team responsible for the proper APIs to ensure the customer experience works seamlessly, or the compliance team who ensures the proper disclosures are sent within the most advantageous software. At the end of the day, a Loan Officer can't demonstrate this in one meeting engaging the customer. It's too irrelevant, and too impractical. But, it is vital to the customer experience.

Let's consider buying a car as a comparison. We get to go to the dealership for some window shopping, a courteous salesman opens any door, let's us sit in it, push buttons, wow ourselves over neat dashboards, grip the steering wheel envisioning our path on the road, and then we can even drive it around town! We can feel it turn sharply, brake nicely, hear the speakers, and the new car smell...everyone loves that. We can look at the engine, and get a sense of its structural integrity. Well, the mortgage process doesn't really get to show that much.

Here's the thing, when it comes to the customer experience, the test drive (starting from when the customer calls, regardless of making contact immediately) is going to be overshadowed by the rate anxiety. A car shopper knows he can purchase the Mercedes, or knows he needs to be at a different dealership. The mortgage shopper doesn't know whether he should be speaking to this lender or not. This, by the way, is why so much of a lender's business is from a trusted referral (family, friend, realtor, financial advisor, etc.).

Ok, so how can a Loan Officer break through the conundrum and show the customer they're as safe as six air bags and steel frame doors, turn sharply, accelerate and decelerate promptly, and have great speakers and built in GPS? It takes two things - time, and tools.

The best Loan Officers will take time with their customer upfront. What are the goals for homeownership? What are the life and financial goals? How will the mortgage facilitate reaching them? What kind of disposable income should be left over? This is best done person to person, and given the changes this day and age has brought, a Zoom call will work just as well as an in-person meeting (I'd argue even better). When the customer needs a mortgage, they're asking for a rate/terms. When the Loan Officer hears a mortgage is being requested, a consultation is the answer. That consultation should consist of an in-depth financial and life conversation, as well as time to show the customer how the lending company supporting that Loan Officer will make the customer feel informed, comfortable, and well taken care of. This way, a test drive can occur. And the customer can feel a better understanding of why rate matters, and so does the lender's business model.

The conundrum for a mortgage company is how to show a customer that their mortgage, while certainly about an interest rate, involves so much more. Because it does, the best Loan Officers value the consultation and the customer will value it too. Business processes should always reflect that internally, and the best mortgage lending companies will be able to demonstrate that consistently.