As we approach the end of the year, it is a good time to reflect on strategic challenges facing mortgage sales groups. While the housing finance industry has had a terrific year in terms of volume, it is clear that the consumer’s home loan buying journey has forever changed. In my view, if lenders want to remain relevant to prospects and referral sources, they must make a commitment to innovate.
In the book, “No Rules Rules: Netflix and the Culture of Reinvention,” Reed Hastings, Netflix CEO, shares important insights on why future success is contingent on innovation. According to Hastings, senior managers must recognize that yesterday’s sales strategies may not be effective moving forward. He states, “Netflix does not operate in a safety-critical market, like medicine or nuclear power. In some industries, preventing error is essential. We are in a creative market. Our big threat in the long run is not making a mistake, it’s lack of innovation. Our risk is failing to come up with creative ideas for how to entertain our customers and therefore, becoming irrelevant.”
While mortgage banking is obviously not in the same business as Netflix, lenders are tasked with providing products and services that are better matched to consumer demand amid a volatile marketplace. This will require creative, innovative sales strategies.
In my opinion, lenders are more likely to be reactive instead of proactive when it comes to implementing change. For example, consumers have redefined what is considered “convenient and easy,” yet some companies still lack mortgage apps and other tools to keep customers updated on the status of their loan file. Add to that delays in returning borrower’s phone calls and it’s no surprise that customer complaints are on the rise! Mortgage companies that can deliver both speed and ease of use during the home finance process will win.
Innovate to Win
Hastings observes that the only real differentiator between companies is the quality of the staff and their ability to generate innovative ideas. In his book, Hastings describes how Blockbuster once declined an opportunity to purchase Netflix. Not long after that meeting, Blockbuster went out of business. After historic success with a brick-and-mortar strategy, Blockbuster could not envision what consumers would want in the future and failed to adapt accordingly.
Becoming more innovative can be difficult when a company has had previous success with tried-and-true strategies. Oftentimes, senior executives believe that success will continue without the need for changes or adjustments. Eventually, this thinking becomes ingrained in a company’s culture and when disaster occurs, management is not able to adjust in time.
In the financial services industry, we have been fortunate because regulations have established barriers to entry for non-banking firms. Unfortunately, this won’t last forever. It is inevitable that customers will be presented with alternatives to traditional home loan purchases in the future.
While low interest rates have driven mortgage banking profits in 2020, it would be foolhardy to think customers will be satisfied with poor service once home loan rates inch higher. Case in point: For many lenders, it currently takes 60-90 days to close a refinance loan. This simply isn’t good enough to motivate borrowers to refer their friends and family. Is it any wonder that only 18% of consumers stay with their original lender?
According to Hastings, companies that take an innovative approach to delivering products and services will set the stage for long-term success. Is your lender thinking outside of the box? They better be.