Banks' Best Mortgage Source: Their Own Customers

This year has been a tougher mortgage environment than most expected. The Mortgage Bankers Association revised estimates of new originations in 2014 to $1.1 trillion, compared to $1.8 trillion in 2013.

In a slower mortgage environment, banks must expand their market share in order to maintain volume. The good news for banks is that they already have thousands of potential mortgage customers within their existing bases — if they can make a competitive offer when the mortgage need arises.

For many customers, the friendly, personal service offered by their primary bank plays an important part in determining their loyalty and the number of product relationships that they have. Unfortunately, when it comes to purchasing a home or refinancing an existing mortgage, those loyal customers often choose to begin the mortgage application process elsewhere. Our research has found that many banks provide the mortgage to only 10% of their existing customers who are in search of one.

There are a few reasons why customers tend to go outside of their own banks for mortgages. First, since taking out a home loan is often the most expensive financial transaction that customers undertake, they're more likely to want to shop around for the best deal.

In fact, our survey of over 12,000 recent home-buyers found that approximately 40% first sought out mortgage advice from a real estate agent while roughly 10% turned to their local bank branch. Other sources of information included the Internet, family, friends and other finance professionals. Customers do not automatically think of their bank when it's time to take out a mortgage, and that is an issue bankers need to address.

In addition, since customers don't need new mortgages very often, they may even forget that their own bank is in the business, especially if the bank has made no recent attempt to contact them about that capability. Even if the bank has tried ongoing relationship marketing, other parties — particularly the real estate agent or builder — may exert a strong influence over the selection of the mortgage lender. Yet the customer's own bank may offer very competitive mortgage products, great service and the benefit of local servicing of the home loan.

It is very difficult to mass-market new mortgages, especially in a purchase money lending environment. But banks can successfully use sophisticated techniques to determine who is likely to be in the market for a mortgage at any given time. They may pull databases of previous mortgage customers, leads that did not close or customers that have other non-mortgage products with the bank. They can then match those databases against data marts that offer information about people who are likely to be in the market right now.

Having determined likely mortgage applicants, relationship banks have a tremendous advantage over their competitors. They can call the customer directly, using the phone number that is likely already in the customer relationship management system. Since 85% of individuals acquired from lead sources either do not have an identified phone number or are on the "do not call" list, this puts the primary bank in the driver's seat for customer contact. Customers are also much more likely to answer the phone when their caller ID identifies the person on the other end of the line as a representative from their own bank. Meanwhile, other companies that are mining every database out there often find attempts to make phone contact somewhat futile.

Banks' retail loan officers will be willing to reach out directly to prospective customers if they are confident about the value of the offer they are able to make and know that their processing and underwriting shops are customer service-oriented. But that's not the only option. Banks may be able to use their client lists to create a multi-pronged campaign that includes email, direct mail and even social media as well as the phone. They may also want to consider using a call center for some of the lead follow-up in order to enable more consistent customer contact, with the additional benefit of better customer tracking.

Banks can get in front of loyal customers by using these advanced database marketing techniques — and make the most of the customer base they have already spent so much time and effort developing.

Garth Graham is a partner with Stratmor Group and has over 25 years of mortgage experience.