As federal regulators continue the rulemaking process for our industry, one of the things many of our lender customers are doing right now is taking an inventory of their business partners. It’s a risk-mitigation exercise because lenders are held responsible for the actions of any third party operating on their behalf, but it also serves as a great illustration for a critical imperative for our industry. As you look down the long list of service providers and independent professionals that you work with, how many do you really trust?
My guess is that you trust every single one of them. Sure, you’ll verify that your trust is not misplaced, but if there is the slightest question that someone you’re working with today is not trustworthy, you’ll remove them from the list. Why then do we expect consumers to act any differently?
Federal regulators are driving mortgage lenders to pay more attention to the consumer’s experience and that is a very good thing, for these experiences determine the level of trust they have in us and our businesses. The more they trust us, the more often they will return to us for future loans and refer their friends and families. Indicators of our current trust level include the facts that 97% of home loan borrowers go to a different lender for their next loan and referral business from past customers is dismally low. It’s a fact that our industry has found it difficult to earn consumers’ loyalty.
When Forbes magazine wrote about the new core of leadership recently, contributor Charles Green wrote, “New leaders (are) those who can successfully persuade others to trust them.”
We can’t lead with fences. Some have tried to develop new processes or install new technologies to keep their employees honest, but there is a way around any hurdle you can put in place. There is only one way to be sure your team will be fully compliant and ready to build customer loyalty. In my experience, the only way to ensure trust is to embrace integrity.
Integrity has been defined as, “The quality of being honest and having strong moral principles; moral uprightness.” This is the only thing that will guarantee that everyone in your organization is fully compliant with both the letter and the spirit of the law, which makes our business a lot like golf.
Did you know that golf is the only sport you can play where you are expected to be your own official? It’s good golf etiquette to always have a copy of the rules of golf in your bag, in case someone you’re playing with questions your decision. Even so, the final decision and the resulting score are up to the individual player. It’s also your responsibility to hand in your correct score for the calculation of your handicap. I guess that’s the source of the old golfer’s quip: if there’s any larceny in a man, golf will bring it out. Funny, but true. Money will also bring it out.
That’s not to say that giving people a paycheck will drive them to noncompliance. Most of the cases involving gross misconduct in our industry have been limited to a few bad players. But anyone who loves golf knows that just because trees are 90% air doesn’t mean a ball hit into the woods won’t find timber. They often do. Worse, the media and politically ambitious law enforcement personnel are quick to report these problems to the masses.
Just because many of your company executives exhibit high levels of integrity does not mean that your entire organization is operating in this manner. Instilling a sense of integrity in an organization is a cultural change and it is no simple matter. Done well, it will change how your organization is viewed by regulators and consumers, which will fuel your success. I have found three key elements that will go a long way toward helping organizations make this change.
The first way to build a sense of integrity within your organization is by always telling the truth. Sounds obvious, but small lies tend to grow. I admit that this is nothing new. Every reader is aware that our industry is the target of the Truth-in-Lending Act. This concept is literally in the letter of the law. The new integrated disclosures coming next year will make this even more apparent to both the loan officer and the borrower. So, what makes it so hard?
No other industry is under as much pressure as mortgage lenders to tell the truth and nothing but the truth. Not only must the loan officer give prospective borrowers a true picture of what their life will be like after they take out the mortgage, but they must also work with applicants to ensure that they can actually repay the loan.
At the same time, loan officers are tasked with bringing in mortgage volume to the institution, which for many originators is the only way they generate revenue. There can be tremendous internal pressure to leave out information that will keep a deal that “almost works” from being removed from the pipeline. In today’s regulatory environment, there is no margin for error and any omission will eventually be corrected. When this happens, the customer experiences a rude shock, trust is lost and the consumer’s experience degrades rapidly.
The only way to avoid this is to tell the truth. This is one area where technology can assist, especially when it comes to the details of the deal in question. Automated underwriting engines and product and pricing engines are better than ever. But even before these tools provide answers to prospective borrowers, a good GFE fee engine can provide a guaranteed cost to close, one of the most important pieces of information you can provide to the consumer. It’s the equivalent of handing in the right score after a round of golf.
The second thing lenders can do to build trust is to start sharing accurate information with the prospective borrower earlier in the process. Borrowers are used to being told one story by the person selling them a loan and even by those in the processing department and then finding something different on the forms presented at the closing table.
The government has already taken steps to correct this, in part. Lenders can still get the numbers wrong, as long as they re-disclose them. Sometimes, this is unavoidable, such as when changes in recording costs occur at the county level. In most cases, giving the right information as close to the point of sale as possible will demonstrate a high degree of integrity and contribute to building consumer trust.
Finally, the third way to build trust with borrowers is to provide frequent and accurate status updates. The loan manufacturing process is a fluid process and there are many changes that occur along the way. Most of them do not alter the deal the borrower believes they are qualified to receive at the end of the process. Regardless of how the changes impact the borrower, providing status updates whenever something changes is a great way to keep the borrower engaged and satisfied.
It really is like golf. I love the game, but I enjoy it more when I’m playing with people I enjoy being with, people of integrity. It just makes the game better. We need our borrowers to know that we are all in this game together and that the outcome must be what’s best for all of us.
By working to rebuild trust on the part of its borrowers, the lending institution accomplishes a number of important things. It drives a cultural change in the company that impacts the way the customer is treated, which improves customer satisfaction, which satisfies federal regulators. It also builds something our industry has had a difficult time achieving: customer loyalty. With the new 2015 regulations looming and as the government continues its rulemaking, I expect to see more institutions paying attention to integrity and earning more success as a result.