“Our retention rate on mortgages is well into the 90s…”

-Scotiabank’s CEO Rick Waugh (Source)

It’s getting tougher to woo customers from their lender at renewal. Banks in particular are doing an exceptional job at convincing borrowers to stay on board, as the quote above confirms.

Waugh’s number is notably higher than most industry statistics. Last spring, CAAMP found that 86% of mortgagors stayed put with their bank at renewal. Scotia’s low-to-mid 90% number is phenomenal.

Some might expect client retention rates to decline with ever-increasing competition. But, for the most part, that hasn’t happened.

Many lenders have invested enormous sums in retention and continue to make incremental improvements to their retention rates.

These lenders are:

• refining their predictive models of consumer behaviour (e.g. who is most likely to buy other products, pay a penalty, be rate sensitive, etc.)
• proactively contacting borrowers sooner
• offering earlier and earlier renewals (without penalty)
• immediately calling clients who request payout statements
• refining phone scripts and customizing them to each client
• holding retention reps individually accountable (S&P writes, for example, that “MCAP has a six-member mortgage retention team; each account manager has an assigned portfolio and is responsible for managing a letter and telephone campaign…”)
• improving training procedures
• honing their ability to foster client relationships
• improving psychological tactics to discourage consumers from switching
• making more rate exceptions
• bundling more “special offer” products with mortgages.

It is well known that retaining an existing customer costs less than acquiring a new one. And losing a customer costs the most of all (because it’s harder to convince departed clients to come back again).

As time goes on—especially if mortgage volumes shrink—it’s likely that brokers will increasingly consider lenders with trailer fee compensation programs. Trailer fees are relatively easy money and few mortgage originators look forward to crossing swords with a retention team.

The problem is, trailer fee lenders have fewer products and often have inferior pricing than the major banks (especially on terms other than five years). A challenge remains for such lenders to access equal or better mortgage funding on a range of terms. That’s easier said than done, however, given that much of that funding must come from the very banks they’re competing against.

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Rob McLister, CMT