The Mortgage Borrower's Midsummer Night's Dream
Ibrahim, S. A., Mortgage Banking
The poet's eye, in fine frenzy rolling, Doth glance from heaven to earth, from earth to heaven; And as imagination bodies forth The forms of things unknown, the poet's pen Turns them to shapes and gives to airy nothing A local habitation and a name. --WILLIAM SHAKESPEARK, A Midsummer Night's Dream
We don't hire a lot of poets in the financial services industry. Poets tend to live in a dream world. We in the mortgage industry live in the real world of money, risk, system limitations, regulatory restrictions and fierce competition. Our world is tightly circumscribed by practical profitability considerations.
This is not to say that we are not innovative. On the contrary: Within the tight space in which we operate, we have been far more innovative than anyone would have imagined just a decade ago. Lenders have pushed the limits of risk (some may say too far in the past few years) and have implemented new technologies and operating processes that have created much value.
In my frequent interaction with our industry leaders, I am continually amazed by the creative energy being poured into innovation. Much has been put toward improving profitability and, for the first time, creating competitive differences--something ignored for too long by those in the industry who have all relied on the same undifferentiated business strategies.
I was recently reading about competitive differentiation in non-financial consumer-oriented businesses, and noticed a key difference. Competitive differentiation in these non-financial industries seems to start with an obsession about understanding consumer needs and beating the competition by delivering products and services that come closest to meeting those needs.
By contrast, while mortgage lenders (having been one myself until recently) talk about consumers--i.e., borrowers, they are not obsessed about their needs to the same extent. They talk more about meeting the needs of the secondary market than the needs of borrowers.
Not surprisingly, most home-loan borrowers are not satisfied with the mortgage process and rarely return to the same lender, to say nothing of referring their friends and family. The American Customer Satisfaction Index[SM], produced by the Stephen M. Ross Business School at the University of Michigan, in partnership with the American Society for Quality (ASQ), Milwaukee, and the international consulting firm CFI Group USA, Ann Arbor, Michigan, keeps tabs on how industries are satisfying their customers.
Banks and mortgage firms typically score in the mid-70s on this index--which isn't very good. To put it in perspective, the horrific task of seeking information to sort out Medicare Prescription Drug Plan costs on a U.S. government Web site scored an 86 in the first quarter of 2006.
Westlake Village, California-based J.D. Power and Associates concluded after its 2005 Home Mortgage Survey that the likelihood of a borrower personally recommending his or her loan service provider decreases by almost one-half when the borrower is not fully satisfied. Only two out of five borrowers who rated their lender 9 out of 10 for overall satisfaction will refer someone else to that company, according to the research firm.
In Shakespeare's rollicking comedy A Midsummer Night's Dream, Puck asks the audience to forgive the characters' antics as if the play were only a dream. Too bad the mortgage industry can't do the same thing.
But what if we could, for a moment, forget the harsh realities of the mortgage business and dream the borrower's dream? Please join me in a brief flight of fancy as I consider a few examples of what I think borrowers really want.
Different solutions for different borrowers
The tax-efficient solution to financing in excess of $1 million
With home prices in the millions of dollars now very common, particularly on the West Coast and in the Northeast, it is not unusual for borrowers to look for a mortgage amount in excess of $1 million. …