Matt Hydrew, CreditXpert’s VP of Sales and Client Success, gives insight on how a year like 2020 affects mortgage lending in an article for the Progress in Lending Association. Keep reading to learn what makes the mortgage lending business tick, and how you can take control of lead fall-out with a six-point plan:

The mortgage industry has been my professional home for more than 20 years.  Like most of you I find this business endlessly fascinating thanks to its breadth and its scope.  While other industries touch many aspects of daily life, mortgage lending deeply affects people where and how they live, and, often, why they live where they do.

This is precisely why I work in the mortgage business.  We are helping people in meaningful ways every single day; with every loan we close. My focus has always been on helping lenders convert more of their applicants into homeowners.  It is simply the right thing to do.

What Makes This Business Tick?

I could write an entire book on why mortgage lending fascinates me.  One of the obvious reasons is that no two years are ever the same.  Some years, like last year, are downright surprising.  Take an historical look at annual mortgage originations.  About once in every decade we have a year like 2020: an avalanche of volume fueled by some economic or world event.  Then, the next year, in this case 2021, we begin a return to some sort of normalcy:  more purchase than refinance and more predictable year-over-year volumes.

Greater predictability and lower annual volumes gives everyone the opportunity to think about this business strategically.  What makes it tick?  And how do I take charge of my business in such a dynamic environment?

What makes it tick is obvious:  profitably connecting borrowers and lenders.  This is also the tricky part.  Borrowers have the option to work with any lender they choose.  Getting them to choose you, and stay with you, starts with early lead management, and means dealing with its counterpart, early lead fall-out.   While closing pre-qualified borrowers is often taken for granted, borrowers who do not make it to pre-qualification – the early leads – fall-out at a rate of about 20%.  This is not a new phenomenon; it is a long-term industry issue.  Decreasing early lead fall-out in 2021 is one of the keys to long-run profitability.  It is past time to do something about it.

Taking Control

So many factors are outside our control.  Early lead fall-out is not one of them.  Addressing it head-on takes a little understanding of the potential borrowers affected, then developing a plan, setting a goal, and executing.

Let’s look at early lead fall-out borrowers.  They segment neatly into two categories.  First are referrals.   Referrals are highly prized in this, and in every industry.  Because of where they come from, they are pre-disposed to doing business with you.  Second are digital leads or shoppers.  No less important, though they walk in the door less committed.  Regardless, referrals and digital borrowers then sub-segment into the following groups. Some borrowers fall-out because they were just testing the waters.  Others strike out in the first inning because they do not qualify due to credit issues that make borrowing a challenge, though not an impossible one. Still others find a ‘better’ deal – or are courted by competitors following trigger leads.  In many cases, these borrowers lose interest in working with your company due to, as one of my colleagues is fond of saying, “benign neglect”.  Mortgage loan officers simply get busy with other applicants, or worse, they do not know how or choose not to help these applicants, so these potential borrowers go to another company that does.

Keeping these borrowers – referrals and digital leads – in the pipeline is good for profitability, referrals especially so.  More importantly it is the right thing to do. We are here to help borrowers and make a profit.

Now let’s look at a six-point plan for reducing early lead fall-out, perhaps by as much as 50%:

  1. Validate and analyze early lead fall-out.  Thoroughly review 2019 pipeline statistics and performance.  Look at 2020’s data as well.  While last year is not representative of the years ahead, it will provide key insights.
    Why don’t more leads convert to true applicants?  That data is, or should be, readily available through your POS and loan origination systems.  These systems should be showing you where potential borrowers either dropped off or got left off.   Asking your MLOs is another step I would recommend.  While there will be some common patterns – like getting stuck at choosing a loan program or credit, every lender is different.  It is important to look at this data critically.  Knowing what drives early lead fall-out is key to decreasing this costly drag on profitability.
  2. Develop plans to improve on the top reasons for early lead fall-out.  No single approach will address all the reasons potential borrowers walk away, nor will one plan fit every lender.  Understand why you lose leads – and what you can do about it. For instance, if you are losing leads because they go to a competitor offering better terms, look at ways to get good prospects into more competitive loan programs.  Then there are the leads that do not qualify.  You may need to help them understand qualification issues, setting them up for success.
  3. Execute.  Parts of the plan will be fast and easy to execute.  It may be as simple as making sure your loan officers are aware of all the financing options they have at their disposal.  From there it gets more difficult.  For some borrowers, avoiding early lead fall-out means a longer timeframe and active nurturing throughout their buying journey.  Plenty of potential borrowers never reach the closing table due to lack of timely, topical engagement, benign neglect, if you will.  As we shift back to a more normal market volume, no lender can afford to lose these leads.
  4. Commit the resources to help borrowers. More and more, data-driven nurturing is becoming standard practice when credit is an issue, whether the credit issue is keeping the borrower from qualifying for a mortgage or severely limiting their financing options.  Some lenders will offer their advice, while others may suggest credit counseling or credit repair.  This may mean letting the lead go, assuming the borrower will return once their credit has improved.  As a salesperson, I can tell you this goes against a best practice I learned a long, long time ago: Never let a lead go. And, as someone trying to make a difference for borrowers, I want to give them a better approach, one that educates them and helps them make a long-lasting change.
  5. Make a commitment to borrower education.  Specifically, commit to educating borrowers about their credit scores, and what impacts them.  Even borrowers who know their mortgage credit score often have no idea why it is what it is.  They take the score at face value, assuming nothing can be done about it.  And therein lies the trouble with credit scores:  they are opaque.
    Credit scores do not have to be opaque. Nor should they be.  Every borrower deserves to understand what is behind it, and what they can do to make and keep it better.  This is where you come in. This is also where we come in. My company, CreditXPert, offers the tools you need to cast a bright light on what comprises every borrower’s credit score.  More importantly, the same tools show you what the credit score can be, and how to get it there.  Whether you review the credit report to show your borrower what impacts their score most, or run credit score simulations for them, you have the power to show every borrower – not just those who are credit-challenged – how a few simple actions can make a big difference.
    There is a compliance aspect to this, too.  Treating all borrowers the same, helping all borrowers equally, aids regulatory compliance.
    Sounds like work, expensive work, I hear you saying.   True.  But every closed loan is worth thousands of dollars – and lost leads mean lost profit. Do not throw out dollars chasing dimes.
  6. Diligently monitor your early lead fall-out plan and performance.  Earlier, I suggested that you may be losing 20% of your leads to early fall-out. Set a goal for 2021 to cut it by at least one-third.
    Achieving your goal of reducing early lead fall-out will pay dividends in the form of greater profitability.  Up to recently profitability has been elusive.  Converting a higher number of leads to closed loans is one sure way of making it sustainable.

Aggressively managing early lead fall-out is also a competitive strategy.  Mortgage loans are commodities.  Competing on anything other than service is difficult.  Helping borrowers understand and optimize their mortgage credit score makes a lasting impression and builds a deeper relationship.  It helps you build business today and for the future with the borrowers you help and those they refer to you. Most borrowers, regardless of credit score, can improve or optimize their scores.  When you show them how, you become a trusted advisor.

Summing Up

2020 produced countless challenges for us all, with more factors than usual completely out of our control.  Forget those things that are beyond your control.  Focus on the controllable variables, starting with early lead fall-out.  While not a focus in 2020 for most lenders, some did double-down on retaining early leads.  One reason is profitability.  Closing loans is how money is made in this business.  Meeting more early leads at the closing table translates to a better bottom-line.

I will have a lot of suggestions this year on closing more loans, especially pulling early leads through the pipeline.  Want to talk more about early lead fall-out and how CreditXpert can help? Drop me a line at mhydrew@creditxpert.com.