It’s been 15 years since the housing finance industry has been in an upward trending rate environment like the one we’re in today.
You probably remember well that, at the time, a thirst to capture business in any way possible spurred lenders to expand the credit box wider than it should’ve ever been, which eventually led to the Financial Crisis.
Thankfully, we have stricter rules and regulations today, but this leaves lenders in a tight spot.
It’s vital that correspondent lenders carefully choose who they’re partnering with to buy their loans since margins are compressing. When volume and price will not solve the situation, here are three reasons why a strong partner will help lenders avoid closing up shop.
- Keep and Grow Happy Customers
The greatest way for a lender to grow their business is through the clients they already have. Happy clients are a great way to capture referrals and leads, at no additional cost to the lender. A positive referral not only saves tons of money because it’s a free lead, but is making tons of money and building the business for the long-term. The key is to maintain a great relationship with customers by ensuring a great servicing experience. The last thing lenders need is a bad servicing partner where the customer they worked so hard to earn remembers them for a potentially bad servicing experience, which the customer thinks equate to the lender.
The price tag: Given how competitive the market is, leverage happy customers to obtain as many free referrals as possible; it’s important to not lose leads from terrible service.
- The impact of poor loan performance
When a servicer doesn’t do a good job, it reflects badly upon the correspondent lender since it impacts the lender’s compare ratio (learn more about compare ratios here). A bad compare ratio has dire consequences that can quickly turn into a slippery slope for the lender.
The high compare ratio could prohibit the lender from being allowed to originate certain types of loans or participate in certain programs, which can impact margins. On top of that stiff penalty, the product limitations and overlays could cause their LO to get up and leave since they can’t originate certain loans, causing them to make less money than they could elsewhere.
The price tag: The consequence of a bad compare ratio could not only cause lenders to lose business, but they could also lose much-needed talent. It will be tough to keep the company running if their product offerings and talent are dwindling.
- Keep Customer Service a Priority
When the servicer isn’t doing a good job, the customer is going to call the correspondent lender and complain. They don’t know the difference between the originator and the servicer; they think the two are one in the same. Therefore, it’s imperative that the lender selects a servicer who provides high-quality service because the more time they spend dealing with angry borrowers, the more work and money it costs them.
The price tag: Lenders need to be out there hustling and not fielding upset calls from their borrowers. It’s easy to select a servicer on price, but lenders need to make sure that they’re delivering a real-time, highly customer-centric experience that reflects their business and brand.
We’re not going back to how the market operated in 2003. Instead, I believe now is the prime opportunity to seize the moment to take market share. Happy customers are good for business, especially in the current lending environment. Don’t mess this up by partnering with a terrible investor or servicer.