How the mortgage industry in the US is innovating as retention rate hits 17-year low

Despite significant efforts by mortgage companies to improve customer retention, the industry in the US has seen its retention rates plummet to a 17-year low. According to a recent report by ICE Mortgage Technology, the second-quarter customer retention rates stood at a mere 20% for all industry lenders, with nonbank lenders faring slightly better at 28%. 

These figures represent a decline from the previous quarter, where retention rates were 25% and 34%, respectively. Amidst these challenges, the mortgage industry is exploring various strategies to retain customers and bolster loan production operations.

One approach in focus involves acquiring mortgage servicing rights (MSRs), a strategy leveraged by prominent entities such as Rocket. This tactic is seen as a mechanism to sustain loan production by retaining existing customers. Rocket has recently highlighted MSR purchases as a key growth pillar, coupled with a newly announced subservicing partnership with Annaly.

This move is anticipated to position Rocket as a substantial competitor in the subservicing sector.

To counteract declining retention rates, some companies are developing innovative tools aimed at enhancing customer engagement. Subservicer Loancare has introduced a solution named Digital Recapture, designed to inform borrowers about potential refinancing opportunities or home equity loans.

Dave Worrall, president of Loancare, described the initiative as a significant enhancement to the homeowner digital experience. The tool provides borrowers with direct access to refinancing options while supplying clients with real-time actionable leads to strengthen their portfolio defense strategy.

Freedom, another significant player in the MSR space, is currently entangled in a legal dispute with Loancare.

According to Bose George from Keefe, Bruyette & Woods, Freedom’s correspondent channel showed remarkable growth, with a 337% year-over-year increase in volume for the first half of 2024. The uptick underscores Freedom’s strategy to capitalize on higher coupon MSRs, aiming to refinance loans through recapture.

In addition to these methods, Mobility Market Intelligence (MMI) has launched a refinance lead generation tool known as Refinder. This product scans loan officers’ databases to identify refinancing opportunities based on current note rates. Ben Teerlink, founder and CEO of MMI, emphasised the importance of providing actionable insights from data, noting that the tool assists clients in preparing for downward trends in interest rates.

Furthermore, compliance with regulations remains a critical area for lenders during customer outreach activities. Total Expert has introduced Engage SMS, a messaging tool that helps lenders comply with the Telephone Consumer Protection Act.

This tool enables lenders to segment contacts, automate initial outreach via personalised bulk messages, and seamlessly transition into one-on-one conversations when customers respond.

While efforts to bolster retention rates continue, the challenges facing the mortgage industry remain substantial. As mortgage rates fluctuate and traditional retention strategies falter, innovation appears to be the way forward for lenders seeking to maintain and expand their customer base in a competitive market.