Uh-oh: Borrowers’ satisfaction with their lender is falling as originations rise

Can the mortgage industry handle the origination surge?

By all accounts, 2019 is going to end up being the best year for the mortgage business in at least three years, but there appears to be a serious fly in the mortgage business’ ointment.

A new survey shows that borrowers’ satisfaction with their lender dropped significantly in the second quarter as lenders struggled to deal with the surge in mortgage demand caused by falling interest rates.

Put simply, it appears that lenders are not handling the rise in originations well, and borrowers aren’t terribly pleased about it.

The information comes courtesy of J.D. Power’s 2019 U.S. Primary Mortgage Origination Satisfaction Study, which shows that overall borrower satisfaction fell from 869 (on a 1,000-point scale) in the first quarter to 853 in the second quarter.

At the same time, mortgage originations rose 54% from the first quarter to the second quarter.

So, as mortgage originations went up, borrower satisfaction went down.

The cause, it appears, is lenders’ relative inability to deal with the rise in mortgage demand in a year when mortgage originations were expected to be down.

“Mortgage originators have been consistently transforming their businesses by adding self-service technology tools and reducing customer-facing staff, but when put to the test by an unexpected surge in refinancing volume, this approach fell short of customer expectations,” said John Cabell, director of wealth and lending intelligence at J.D. Power.

Throughout much of last year, many lenders cut staff and laid off employees as originations fell, but this year, originations have been on the rise and lenders have not been able to keep up with the demand given their current staffing levels.

“It is critical that originators get the balance right between tech and staffing to be able to deal with the swings in loan volume that can dramatically change from month to month,” Cabell added.

According to the J.D. Power report, overall borrower satisfaction is still up over last year, but the decline in the second quarter should be seen as concerning.

The report also states that there has been a “particularly higher decline” among borrowers who are buying a home as opposed to those who are refinancing.

The latest projections from the Mortgage Bankers Association show that the refinancing share of mortgage originations is expected to rise to 38%, which would be the highest level since 2016. The MBA also said that refinancing originations in 2019 are expected to total $793 billion, up from $467 billion in 2018.

And based on the J.D. Power report, it appears that lenders are focusing their attention on those refinance borrowers at the expense of the purchase borrower.

But the survey notes that there are some things lenders can do to ease the issues they appear to be facing with borrowers.

One way to increase satisfaction is with effective digital communication and real-time updates.

“Overall satisfaction scores are 140 points higher, on average, when mortgage customers are provided—and use—real-time access to the status of their loan via an online portal than when no such access is provided,” J.D. Power noted in its report.

But that flies in the face of how much of the mortgage process is still manual.

According to the survey, despite the mortgage industry’s push to go digital, the “lion’s share” of customer interaction is occurring via email (70% utilization rate) and phone (63% utilization rate).

Conversely, just 15% of customers said they are using their mortgage originator’s mobile app.

Another thing standing in the way of increased customer satisfaction, according to the survey, is the presence of “intermediaries” in the mortgage process.

“Overall satisfaction with their lender and trust are significantly lower among customers who worked with their lender through a broker or real estate agent/builder,” J.D. Power noted in its report. “The involvement of these third-party intermediaries drops satisfaction by as much as 40 points and trust by as much as 50 points. These differences underscore the ongoing challenges that lenders have in controlling the loan experience.”

As for all of those borrowers who are rushing to refinance, nearly two-thirds (63% to be exact) of all mortgage customers refinanced their mortgage in order to get more favorable loan terms.

For more on the J.D. Power survey, including which lenders led the way in customer satisfaction, click here.

Note: The 2019 U.S. Primary Mortgage Origination Satisfaction Study measures overall customer satisfaction based on performance in four factors (in alphabetical order): Application and Approval Process; Communication; Loan Closing; Loan Offerings. The study was fielded in July-August 2019 and is based on responses from 4,602 customers who originated a new mortgage or refinanced within the past 12 months.

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