Surprising data from JD Power about loyalty in purchase transactions
As mortgage rates have declined over the last few months, the opportunity for mortgage refinances has increased.
Mortgage brokers have been prepping to take advantage of loan recapture once customers are in a position to benefit from a refinance.
While purchases haven’t seen the same uptick as refis, they are expected to increase throughout the year. Some new data from JD Power reveals that brokers could have a great opportunity to capture new business with an increase in purchase loans.
Bruce Gehrke (pictured top), senior director of wealth and lending intelligence at JD Power, said that while an expected amount of borrowers stay with the same lender with a refi, that isn’t the case when they purchase a new home.
“I just pulled some numbers up from our most recent origination data about recapture, and the difference between refinance and purchase customers is really remarkable,” Gehrke told Mortgage Professional America. “In the latest number, 72% of refi customers have returned to their prior mortgage lender. That's three out of four customers, basically.
“But purchase customers, and we pulled out first-time homebuyers who, obviously, you know, aren't returning to anybody since this is their first purchase, but with repeat buyers, only 27% returned to their prior mortgage lender. So that's roughly one in four, with three out of four going elsewhere.”
Making the process efficient
While it is unsurprising that a refinance borrower would stay with the same lender, Gehrke was a bit surprised that there wasn’t more of a loyalty factor that might lead that same borrower to consider that lender for a new home purchase.
“I think that's the challenge, because in a market that is focused traditionally on transaction efficiency and has basically conditioned a customer base on that transaction efficiency, there's no reason to believe I should go back to anybody I did business with before, because it's just another transaction,” Gehrke said. “Let me look around, shop around, and see what's best out there. And I feel no loyalty in that environment.”
While that means there are extra opportunities out there for mortgage brokers to capture that new purchase market, it also means that servicers will be in the hunt for those customers as well.
“I think the real challenge is to really understand those borrowers,” Gehrke said. “I think servicers have an advantage, but that isn't a given. They still have to execute. They still have to be able to interact with that borrower and create a personalized experience that makes them feel like they're not starting all over.
“But there are a lot of structural forces in the industry, the secondary market, the agencies, the guidelines, that basically create a process that is starting all over from scratch.”
Gehrke said the challenge is to try to build that personal relationship and trust in a market that rewards the borrower for going with the lowest rate or the best deal.
“It's about feel, and it's about loyalty, and it's about trust,” he said. “Those things are not easy to create in an enduring fashion that can stand up against somebody throwing out a low number at you, because consumers love to jump at the low number. It's been part of the industry forever, and trying to sort through what's a real rate, and what isn't.”
Building those relationships
It’s not just relationships with customers that Gehrke is seeing as making a difference, but also with referral partners. This becomes critical as a customer navigates a purchase loan compared to a refinance.
“The purchase journey includes a lot of off-ramps,” he said. “There are real estate agents involved. They have a vested interest in that they're pushing clients in one way or the other. They’re going to have lenders that they're going to recommend, that they're going to push. So much of the retail mortgage lending business has built upon these relationships.”
Brokers have been able to tap into more of those relationships, both locally and with large wholesale lenders like UWM and Rocket. It allows for cost savings throughout the process, which then can be passed along to the end buyer, giving the broker an advantage over the competition.
Gehrke sees the growth of these ecosystems, both local and national, as a way that the process can be made more efficient and cost-effective.
“So the really effective question is, how well will they actually be able to do that, and can they do that in a way that is transparent to consumers?” he said. “They recognize there is a price benefit to doing business with Rocket, because they have this entire ecosystem locked down. It's more efficient than pulling in six different providers as you go through the mortgage, real estate, title, insurance, and all the other people who are involved in the purchase of a new home.
“It's fascinating to see how things are changing and how some of these bigger companies are aligning themselves. They’re looking towards the future to see how these strategic moves will pay off.”
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