In 2017 I was working with a credit union client’s marketing director to build a few strategic outbound calling lists. One of their primary initiatives at the time was to bring in more mortgage loan volume. Rates were dipping again, and we decided that one of the best ways to accomplish this goal was to identify members who needed their mortgages refinanced.
In order to get an idea of how much mortgage recapture opportunity was available, we looked at some data the credit union had on their members that showed outstanding mortgage balances and the ages of the mortgage loans. We sorted the dates by age and began looking for the date ranges that indicated higher rates. As we got to the bottom of the list, something stood out that shocked us both. There were over 200 members on the list with open mortgages financed on or before 1998.
Between 1998 and 2017 there have been four refinance booms with rates at least two percentage points lower than the rates at which these members financed their mortgages in the late 90’s. Despite multiple opportunities to lower their mortgage payment, decrease the amount of interest paid over the life of the loan, and possibly even cut years off their mortgages, these membershad not taken advantage of the opportunity to refinance.
I performed a quick calculation using the average balance and age of the mortgages, (assuming each member had only refinanced once in 2005). Because these members did not refinance their mortgage when they had the opportunity,they paid $13,000 in interestthat they did not need to pay.
There may be a myriad of reasons why some members decided not to refinance, but in my experience,most of the time the lack of refinancing a mortgage can be attributed to ignorance. Many members simply don’t understand or know that refinancing a mortgage is okay, possible, and can better their situation. This ignorance cost these member tens of thousands in unnecessary interest charges.
This could never happen in 2020, right? I mean, the opportunity to refinance has been all over the news, on social media, and every financial institution has been inundated with mortgage refinancing requests. One may assume that 2020 is different and everyone who should refinance has already done so. However, you will probably not be surprised to learn that this isn’t the case at all.
There are not likely many mortgages still on the books from the 90’s, but an article published by Fannie Mae in September 2020 estimates that nearly 69% of outstanding first-lien loan balances, or approximately $11.1 trillion in loans,have rates that are at or over a half-percentage point higher than the current mortgage rates. Fannie Mae further estimates that only$2.4 trillionof these balances will be refinanced in 2020. That means roughly 50% of all outstanding mortgage balances in America will still stand to benefit from refinancing as of the end of 2020. That’s a lot of opportunity.
It is true that mortgage applications remain at all-time highs and credit union mortgage teams are overcome with more demand than they can handle. Just when itstarts to show signs of slowing, applications bounce back up driven primarily by the continuous interest rate drops. Mortgage interest rates have fallen froman average rate of 3.62% in January to 2.77% in November. Each time rates fall, applications spike. This is a good indication that consumers who are aware of the benefits of refinancing are watching and waiting.
But what of those consumers who are not aware they should refinance? This is where credit unions have an advantage. How do credit unions have a unique advantage over other institutions?
Members trust their credit union. The “Credit Union Innovation Index” published January 2019 reports that 59% of credit union members are “extremely satisfied” with their credit union. Additionally, 65% of members stated they chose their credit union because they trusted it. What this means is that credit union members will listen to the advice their credit union gives them. This makes engaging members easy and meaningful. Especially when it comes to larger financial decisions like refinancing a mortgage.
In November, seven housing authorities including Fannie Mae, Freddie Mac, and the Mortgage Bankers Association were asked to forecast mortgage rates for 2021. Not surprisingly, all predicted rates would slightly increase but remain relatively steady at a3% average. Historically, there is a direct correlation with falling interest rates and a demand for refinancing. As rates level off, the demand for consumer-initiated refinancesalso falls.
Credit unions have done an excellent job at capturing the opportunity presented to them this year. They have improved processes, beefed up mortgage teams, and engaged 3rd party mortgage vendors to assist with processing. All of these decisions and investments were done to increase funding capacities and keep up with a flood of demand for mortgages. While no one wants to continue the 7-day weeks and all-nighters that were experienced in the late spring and early summer months, credit unions should look to maximize the capacity they worked hard to create in 2021.One of the ways they can do that is with a proactive approach to mortgage sales.
Many credit unions have employed outbound calling initiatives in their branch networks and through dedicated outbound call centers to bring in checking accounts, increase deposits, set up basic ancillary products, and especially to recapture consumer loans. Traditionally these teams have shied away from mortgage calls simply due to regulatory hurdles and the specialized training required in mortgage lending. This is a policy and practice that credit unions cannot afford to maintain in 2021.
As consumer-initiated applications fall, there will still be millions of Americans who should refinance but will not, many of which are credit union members. This low hanging fruit is a chance for credit unions to maintain mortgage volumes and generate exceptional revenue growth, but more importantly, it is an opportunity to create exceptional value for their members and establish new primary financial relationships.
According to statistics provided by Callahan & Associates in October 2019, credit unions are responsible for 12.4% of all mortgage originations in the United States. A study conducted by Harris Poll found that 16% of Americans consider a credit union their primary financial institution (PFI). This tight correlation between mortgage originations and the PFI cannot be overlooked. Capturing the mortgage relationship is an essential aspect of establishing a life-long financial relationship with a member and becoming his or her PFI.
With rates projected to remain low on mortgages in 2021, and a major percentage of Americans still needing to refinance their mortgage, the opportunity to grow membership and deepen member relationships has never been greater for credit unions.
So how do credit unions capture this demand?
First: Credit union leaders need to reevaluatetheir lack of confidence in front-line staff to have mortgage conversations.
There is a lack of mortgage training for front-line employees which creates two problems. One, credit union leadership is hesitant to encourage mortgage discussions to take place on the front line.And two, front-line team members are hesitant to bring up conversations about mortgage products. Both problems lead to very few conversations happening at the front line. Considering that the credit union’s front-linecomprises the lion’s share of in-person interactions with members,it is a significant obstacle that must be addressed to increase mortgage sales opportunities in 2021.
Second: Credit union leaders need to provide front-line staff with basic mortgage sales training.
In addition to basic mortgage training, front-line employees also need basic mortgage sales training. They need to be trained in how to ask questions that uncover opportunity, qualify that opportunity, engage the member in the opportunity, and finally to submit high-quality referrals that bring results whenfollowed through.
Two consistent complaints I hear about mortgage referrals submitted by front-line employees are:
“The mortgage team never follows up on the referrals I send them.”
Mortgage Loan Officers:
“The referrals I receive from the front-line are terrible and never go anywhere.”
By addressing these complaints via the training outlined above and developing an effective referral process, credit unions can tap into a reservoir of untouched mortgage opportunity.
Third: Credit union leaders must build mortgage lead lists on which employees may call.
Between COVID-19 still raging in many parts of the country and the natural transition to financial business being conducted online and via mobile devices, branch traffic is at an all-time low. This shift has presented credit unions with a large number of employees who have excess time on their hands. Why not maximize their effectiveness by giving them a mortgage lead list from which to call when they have down time?
Mortgage lead lists are simple to develop and easy to work with. We have already established that in 2021, 50% of Americans will still be holding a mortgage that could benefit from refinancing. With that kind of percentage, a credit union could simply generate a list of all members who have mortgages and see success. However, by including other factors, a credit union can easily create a targeted lead list of members that would yield a high success rate of mortgage refinances.
Fourth: Team members need outbound call training.
Even with an effective lead list in hand, team members expected to make outbound calls will struggle if they do not know how to make a successful outbound call.
Those team members asked to make outbound calls need outbound-specific sales training in order to create results. Without this training, credit unions risk a higher rate of failure in these calls, quick burnout from team members, dissatisfied members, and wasted effort.
Proper outbound call training should include providing a clear objective, defining what success looks like, teaching a specific conversation process and possibly some scripting, and training on getting proper commitments and effective follow-up and follow-through.
When a team member has finished training, they should feel confident that they can succeed in every conversation because they understand what is expected of them, have a process that creates predictable results, and know there are next steps in place to see the member through the mortgage sales process.
For credit unions, 2021 may provide the greatest opportunity to build mortgage portfolios andgrow primary financial relationships at record levels. One effective and proactive way to capture this opportunity is by enlisting the help of front-line staff. By providing mortgage-specific product and sales training, and by developing effective sales lead lists, credit unions can open then flood gates for new mortgage refinance referrals.
SalesCU (formerly Nick Brown Consulting) is a credit union-specific, sales training company dedicated to bring a proactive sales approach to every credit union. SalesCU accomplishes this by providing sales consulting and training to enhance branch sales, contact center sales, outbound sales, and lending center sales. The goal of SalesCU is to empower credit unions to cultivate primary financial relationships with their members. Engage Nick Brown directly at 801-860-5807 and firstname.lastname@example.org. Ask about his credit union specific workshops and online sales training, featured at www.salescu.com.