Breaking down the borrower retention problem...
Mortgage lenders in the United States face some of the lowest customer retention rates of any major industry. The cost of such churn is significant; with just one in five borrowers returning to their original lender for a subsequent loan, lenders are squandering the majority of the billions of dollars a year spent on mortgage customer acquisition.
Still, some companies are beating the odds and posting borrower retention rates significantly higher than industry norms. To unlock the secret to their success, Sales Boomerang conducted original research using 730 days of independent, third-party origination data. What they found was definitive and striking.
What do 19 lenders — all of whom outperform peers with customer retention rates of 1.4 to 5.3 times the industry average — have in common? Read on to find out.
The American mortgage industry has one of the worst customer retention rates of any business sector. On average, lenders hold on to fewer than 20% of past customers. That means four out of five mortgage customers will get their next loan from a different lender — and the numbers are only getting worse.
According to data published by Black Knight, average retention rates for refinances dropped to 18% in Q3 2020, down from 20% the previous quarter and 23% the year before. For cash-out refis, retention was even worse at just 12%.
Just how bad is a customer retention rate of 12 to 18 percent? According to a 2018 benchmark study by Customer Gauge2 , average customer retention across more than a dozen industries ranging from retail to professional services is 75.5%. That’s quadruple the borrower retention rate reported by Black Knight. Even hospitality, the worst-ranked industry in the study, enjoys three times as much repeat business (55%) as do mortgage bankers.
To get to the bottom of this vexing problem, we must first examine the factors contributing to the mortgage industry’s dismally low customer retention rate.
THE MISSED OPPORTUNITY IS MASSIVE
The average American consumer will take up to 11 mortgage loans in their lifetime. (a number that accounts not only for purchase and refinance transactions on a primary residence, but also home-equity loans, investment properties, second homes, and so forth).
At this very moment, nearly 20 million Americans are strong candidates for a financially advantageous refinance loan. Each of these refis is an opportunity to capture repeat business — or lose out to a competitor.
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