Sponsored Content from Nomis Solutions: What Are Mortgage Shoppers Looking for in 2020 and Beyond?

Joe Zeibert

To capture loan shoppers, you have one shot. Make it your best.

Today’s savvy consumers know that alternatives to their primary bank exist, and are evaluating a selection of lenders, both locally and on the web. How important is price versus bank attributes for these consumers? We surveyed consumers to find out.

Twelve years ago, as the banking sector began the long haul to recovery after the 2008 financial crisis, everyone agreed that changes were needed to better weather future storms. We streamlined loan application processes, built and created more digital channels, and empowered front-line teams with better tools and information so they can better serve consumers.

The COVID-19 storm is irrevocably changing the banking sector, but this time the path ahead is more uncertain. In the first half of 2020 we have already witnessed:

• Several major banks shut down HELOC lending;
• Non-qualifying mortgages, a once rapidly growing market sector, dropped off dramatically, were pronounced dead, and then began a recovery much faster than anticipated;
• A major contraction of the secondary market for jumbos, giving an even more massive edge to portfolio lenders on these highly profitable loans;
• Potential FDIC QM changes that could lead to new and innovative (yet unforeseen) products;
• Socially distanced consumers shopping online for mortgages like they shop for clothes. If TRID theoretically made it easy to shop and compare LEs during the application phase, COVID-19 made shopping during the lead phase a reality. Now, instead of fighting for customers in your pipeline, you are losing leads that you don’t even have a shot to keep.

Each year, the Nomis analytics team takes the pulse of the consumer lending sector. This year’s survey (last year’s survey is here), examines consumer attitudes to lending in the socially distanced COVID-19 economy. While it’s true that banks have been enhancing self-serve customer capabilities for some time, we wanted to understand consumers’ preferences as they shop, apply, and ultimately receive a loan.

One new feature of today’s lending landscape: more marketplace and online lenders. How do consumers rate their reputation? How much does a bank’s reputation affect where people shop for loans?

We surveyed 500 U.S. consumers who had applied for a loan in the past 12 months, and whose application was accepted — providing a cross-section of pre- and post-pandemic behavior. We asked why they were applying for a loan, what type of loan they were offered, and what loan they ended up with. We examined shopping preferences and practices, what influenced purchase decisions, attitudes to loyalty, transaction preferences, and more.

We focused on the importance of pricing along the customer journey: during the hunt for a loan, when comparing lenders before completing an application, and (given the ease of comparing prices online these days) whether consumers continue to shop once their application is underway. From this, we identified five insights that will guide lenders as they evolve and enhance their pricing capabilities.

1. People choose loan products based on price, not gimmicks

In today’s competitive lending environment with interest rates continually in the news cycle, consumers are focused on securing the lowest possible rate as they select a loan product — 36% of respondents stated that a low interest rate was the primary driver of which type of loan they apply for. Ease of application (27%) and fast access to funds (23%) were also important considerations. Special non-price incentives offered by the lender were important to only 8% of loan applicants.

Amid all the uncertainty, one thing is clear: The times when static rate sheets were sufficient to compete are long gone. Banks and lenders employ different levers to become more customer-centric in pricing their products; to better compete, they must implement data-driven strategies for these three modalities:

1. Base pricing and segmentation;
2. Promotional and behavioral pricing;
3. Discretionary and exception pricing.

2. Price wins over relationship

When we asked consumers to rank a wide range of loan providers by trustworthiness, Main Street (including national and regional banks, as well as community banks and credit unions) got higher rankings than online lenders. But 80% said they would not pay more for a loan from a bank whose reputation they deemed high. In fact, 70% of respondents said price would cause them to switch from their primary bank.

Banks cannot afford to be complacent about their hold over customers; they must focus on all their pricing levers, including promotional pricing and behavioral pricing:

a. Time-bound teaser rates or “specials;”

b. Segment-based promotions for specific markets or customer segments that are coordinated with direct marketing;

c. Engagement-based or behavioral pricing to reward customers if they deepen their engagement with the bank;

d. Cross-sell pricing — a variant of behavioral pricing, where preferred rates or fee waivers are offered to customers who deepen the relationship by buying multiple products.

3. It’s time to expand digital pricing and self-serve capabilities

It’s clear that COVID-19 will accelerate the reimagining of the role of the branch. Our respondents heavily favored digital channels for much of their banking business. However, for some borrowers, access to a lending expert is still important. Most consumers prefer to apply for a loan using some digital technology (web, email, mobile app, chat), but one-fifth of applicants want to meet a lending specialist.

Just as they expect in other retail environments, today’s consumers are looking to transact digitally and expect convenient customer journeys during their shopping and application process. Presenting the right price and the right offer upfront is key to getting that conversation started. To capture the mindshare of shoppers and win their application, make sure your pricing process is fully automated and that your customers can transact on their preferred channel. We predict that everything will be digital; a customer will be a branch talking to a specialist while on their phone shopping and checking every facet of what that expert is saying.

Consumers will want to start the lending process digitally but have access to expert help when needed. Don’t forget the importance of humans in the loop — especially as we recover from this current crisis. Empowering your front-line bankers and lending specialists with customer insights is key, along with the ability and the authority to make “in the moment” adjustments to secure the business of the customer they’re working with right now.

4. Comparison shopping is the norm

When researching a loan, only 31% of loan applicants considered solely their primary bank, and these consumers tended to be older. Almost 70% of our respondents researched two or more lenders — and included online/marketplace lenders and lender comparison websites in their research.

The lender that can offer a consumer the best possible price across all available prices offered to that consumer is best positioned to deter comparison shopping. The trick, of course, is to be continually optimizing your price in response the daily dynamics of the market, so that you maintain your competitive position consistently, over time. This is the essence of an effective pricing strategy.

In order to optimize your pricing, you’ll need to embrace a digital approach. Legacy pricing models and printed rate sheets must go. Instead, well-informed dynamic pricing, driven by real-time data, is the only way to stay at the top of the pile and be the stand-out source for that consumer’s loan application.

5. Beware of buyer remorse

Once their loan was approved, 31% said they continued to shop, and 41% said they would accept a better offer from another lender. Fewer than 10% of borrowers would reject a better offer from a competing lender, and 50% would at least consider the idea. Thinking that through, even with everyone shopping and doing research before they apply to make the right choice, almost one-third of customers will keep shopping even after application.

Consumers continue to rethink their options, even once their loan app is underway. And why not — if loan prices are readily available and are known to be fluctuating. You must be confident that your pricing strategy is robust by using a data-driven approach that factors your competitors’ current price into your in-the-moment pricing offer to that consumer. Make it your best shot!

To download the Nomis Solutions 2020 Consumer Lending Survey, visit this page.

(Sponsored content includes material submitted independently of the Mortgage Bankers Association and MBA NewsLink and does not connote an MBA endorsement of a specific company, product or service. For more information about sponsored content opportunities, contact Bill Farmakis at bill@jlfarmakis.com or 203/834-8832.)