Wholesale-Less Market Generates Need for Leads

MBA (4/21/2008 ) Murray, Michael
In a slow real estate market without strong refinance activity or wholesale channels, mortgage lenders have greater difficulty sourcing business, causing the retail lender to rely on a real estate agent or other referrals.

Steve Kropper, president of Bank on Real Estate, Lexington, Ky., said that lenders cannot control purchase transactions because the realtor channel controls the transaction. Preapproval loans do not necessarily lead to borrowers, he said, indicating that three out of the top 10 lenders showed 90 percent of preapproval loans would be “hijacked” by competitors.

Kropper said as sales people, originators need to understand homebuyer motivations in an environment of tight credit, dropping home prices and historically low interest rates. Originators will also need to continue to form strong relationships with realtors as well as other referral sources.

"Realtors are friend [referral source 77 percent of the time] and enemy [as] 90 percent of purchase loan pre-quals in the direct channel are 'poached' and 'hijacked' to another lender by the realtor," Kropper said.

A study by SRATMOR Group, Hingham, Mass., showed that only 3 percent of borrowers remained with their current finance company while 97 percent went to competitors.

“That is one of the big myths we need to debunk,” Kropper said. "There is a myth that loyalty can be fostered in buyers. The data [no repeat purchase business 97 percent of the time] has been stable for years. There is no loyalty."

In 2006, the National Association of Realtors reported that 40 percent of all real estate firms participate in some type of referral program. RE/MAX reported that 70 percent of its transactions result from repeats and referrals, who are “quality prospects” requiring less qualifying than new customers—making lender retention efforts more difficult.

Bank on Real Estate Inc. develops advanced technology to retain and acquire customers for residential lenders. Kropper said that automation is helpful in using analytics—data combined with due diligence—to keep track of previous clients and following up on buyers ready to transition out of a house or refinance. In the long term, with follow up, lenders can retain a relationship with the borrower.

"Lenders have no data elements in their servicing portfolio, nor any indicators from existing borrowers that pre-payment [to buy a new home] is imminent. So they have no way to tell when retention overtures should be launched," Kropper said. "Transactions happen every five to six years. That window is too wide to be leveraged in marketing.. And we believe the window is too narrow, that borrowers have a 21-day window in which they seriously consider and decide on a lender. Lenders are the last to know when they are losing their purchase customer."

Kropper added that lenders "need to keep up with the borrowers. They need to get their hands dirty.”

Kropper will speak on generating borrower purchase market leads as CampusMBA presents its LIVE Online Workshop, Methods of Reaching the Purchase Borrower First…and Last, on Friday, April 25 from 2:00-3:30 p.m. ET.