There are key areas that mortgage institutions can prioritize at this juncture, such as customer engagement and communication, revisiting priorities and restructuring the customer service model. As consumers find comfort and value in a new virtual setup by lenders, institutions are likely to embrace a “go digital” idea for their services by using the right digital tools and by collaborating with their technology partners.
The need to strategize
With the advent of COVID-19, each industry is affected differently and has to find its own unique way to deal with the challenge and address it. The financial industry has encountered unprecedented challenges, and the situation has forced banks to rethink their ways of doing business with customers and vendors. Financial institutions are relooking at their ways of running essential services, including customer support, online banking, account management, credit and payments.
COVID-19 has affected both, banks and consumers. Many homeowners have lost employment, are unable to make payments, are expected to lose their houses and turn delinquent. There is no doubt that forbearance plans in different regions can give a bit of relief for homeowners for a few months to a year or so; however, they will not result in the waiving of any missed payments and interest accumulated during the relief period in most of the cases. As the World Health Organization has declared COVID-19 a pandemic, it is imperative for banks to redefine their lending models, including origination and servicing, to serve their customers in a more collaborative manner, to address critical challenges in hand and to find newer ways to reach out to and support consumers.
Though banks have their own disaster recovery and business continuity plans that can certainly help in the short term, other actions are also needed considering the uncertainty the virus has posed in the immediate term and the impact it is expected to create in the long term. With the speed at which this pandemic has grown, various institutions have already taken a series of measures including prioritizing critical business activities, implementing social distancing and planning for business continuity to help address the current situation. The focus will shift toward moving from in-person services to a remote-based service model that leverages contactless experience. Lending institutions need to look from a short-term and long-term view within the mortgage value chain to address customers’ concerns and develop resilience. There are a few areas that financial institutions and banks can prioritize at this juncture.
Focus areas for mortgage lenders
- Enhance customer engagement and communication
- Inform: Provide up-to-date information to customers about the current challenges and be transparent about how the challenges are being addressed. This could include business decisions within the bank, such as loan restructuring, fee waivers, payment relief, repayment options, and service level communications, and outside the bank, such as regulatory changes, government assistance programs, potential options within customers’ rights and forbearance plans.
- Educate: Educate customers using online tutorials about such matters as loans, product requirements, eligibility, fees, and approval criteria. Encourage them to enroll for online and digital banking services. Banks that are not using advanced tools can look at enabling websites to submit details to provide virtual assistance from loan officers, associated real estate agents, processors or servicers.
- Engage: Be available to customers for any form of essential support or questions. Let customers know you are with them and how they can reach out to you for any clarification or any new question they have based on the scenario changing day to day. For example, with the increasing numbers of distressed homeowners and the surge in refinance applications, lenders and servicers can play a bigger role by engaging with customers, sharing relief programs and creating a personalized action plan for homeowners.
Figure 1: Refinancing is growing as the 30-year U.S fixed-rate mortgage rates have declined sharply
Source: Mortgage Bankers Association, Freddie Mac
The road ahead
Lenders are aware of the need of the hour and are genuinely finding ways to assist customers. A view of where they stand in terms of maturity of these focus areas can help decide where they want to focus on in the near term. This will force banks to think about investing in digital initiatives in a calculated manner considering immediate benefits and the investment needed. First, lenders would like to stay competitive and are likely to enhance technology solutions such as APIs to integrate with various products and channels or engage with a fintech partner to leverage digital solutions that are needed during this pandemic. Second, enhancing customer experience leveraging innovative applications such as mobile chat apps, chatbots, video streaming, etc. to communicate with customers can help retain customers and provide customers a sense of sincerity from a lender’s standpoint. Third, enabling contactless nature of transactions such as e-signing and e-disclosures are required during this time as they also help process loans faster. All these measures will achieve the goal of digital banking in the long term.
The impact of COVID-19 is substantial and has exacerbated the liquidity risk in the mortgage market. Banks need to deal with this uncertainty by taking some concrete steps to keep the customer-first idea in mind. Therefore, continuous engagement with customers is essential at this juncture. As regulatory and financial institutions are likely to revisit guidelines on mortgage rules such as e-signature laws, institutions are likely to embrace going digital for their services by using digital tools and leveraging support from technology partners.
With the large millennial population seeking homeownership now and in the coming years, it is likely that consumers will embrace the new virtual setup by lenders using different digital methods. Homeowners will seek support from lenders, while lenders will expect support from government for distressed customers to address servicing and liquidity challenges. It is obvious that lenders will receive much support from all parties, including regulators, bureaus, government and third-party vendors, to assist their customers in an empathetic way. Post COVID-19, when homeowners will look back and recollect how well they were treated and how they received consistent support, lenders and servicers are expected to enjoy a higher level of customer satisfaction, more contactless applications and digital services, and improved customer engagement.