Maintaining member loyalty in a rate sensitive environment

It may come as a surprise to those of us who believe strongly in the not-for-profit, best-deal-around services that credit unions provide, that members will call their credit union for mortgage interest rates, then call 11 other financials and go with the one that promises them the best rate. Whatever happened to member loyalty? In a refinance market, everyone is rate sensitive. Credit union members are no exception. And while there will always be members who prefer to apply with their credit union even if the rate is a little higher, for every loyal member there are many others who will leave the credit union at a drop of an interest rate. And that drop may not have to be more than one quarter of a percent. Lower interest rates result in lower monthly payments, and who doesn’t want to spend less every month? So while members really can’t be blamed for going elsewhere for lower rates, credit unions can maintain loyalty, and even originate more loans, by looking closely at the service they provide, and by asking themselves if it really is in their members’ best interest to go elsewhere. What’s really going on when a member gets a “better rate”? Do banks and brokers (especially those on the Internet) really have access to lower interest rates? Well, maybe they do. And maybe they don’t. If the interest rate was just a simple number, there would be no confusion. However, a mortgage interest rate is meaningless until every aspect regarding the rate is known. Does that rate come at a cost? (Known as “points”, origination and/or discount fees)? Is it based on 15, 30 or 60-day pricing? Are there any restrictions on that program that might not make it the most attractive one out there? What is the APR? In short, if members are not comparing apples to apples, they may think they are getting a better rate elsewhere, while they actually would have been better off with the credit union. In that case, shouldn’t you explain that to members? Shouldn’t credit unions be the ones to educate members on what to look for so that they can make informed decisions? Not only would you increase loan volume by doing so, but you’d also build loyalty because no one else the member shopped bothered explaining it all to them. Unfortunately, though, that isn’t happening. When a call comes in for a mortgage and the rate question comes up, MSR’s sometimes allow it to be the only thing that comes up. All too often, the following scenario plays itself out: MEMBER: Hi, what’s your rate on a 30-year fixed mortgage? MSR: 6.875% with 1 point and 7.125% at 0. MEMBER: Thanks! (Click. Click.) When your Member Service Representative hangs up, she’s just lost this member’s mortgage to another financial. Consider what would happen if the scenario went like this instead: MEMBER: Hi, what are your rates? MSR: We have many different rates and programs. Tell me a little about your situation. As the member talks, the MSR (or, preferably, the loan officer) develops a relationship with him, and an idea of what he’s looking for. Instead of going down a dead-end street, you’ve opened the door for a conversation that can help your member choose the best program for his unique situation. Once an MSR or loan officer takes the conversation beyond rate, he or she is in a position to help the borrower understand what to look for. Since most borrowers are not familiar with all the ins and outs of mortgage lending, a rate quoted by a broker may appear to be the lowest. But if the borrower didn’t ask about APR, fees, program restrictions, or if that rate reflects the 60-day pricing he needs if he’s locking in now, rather than the lower rate at 15-day pricing brokers like to quote, then it could be higher than it seems. To help members ask the right questions and build the kind of loyalty that only results from demonstrating that it’s not your own loan portfolio you’re looking out for but what’s best for each individual member, encourage them to ask lenders the following questions. That will help them compare the mortgage loan terms the lenders are offering: * What is the average number of days it takes for you to issue a firm loan approval? * Will the rates you are now quoting still be in effect 30 days from now? If we are locked in and rates go up, what is your policy if the rate lock expires? If rates go down after we’ve locked, will we get a lower rate? * What is the APR on the rate you quoted? * What is the index on the adjustable rate you’re quoting? Can you give me a 24-month history of the movement of that index? * What are the total fees associated with the loan? Which are third party expenses, and which are lender fees? How much is your application fee? Does it include a credit report or appraisal? If I don’t close, will my application fee be refunded? * How will this loan affect my financial goals? * How long have you been in business? Are you closing at least 100 loans a year? What percentage of the applications you take close? * Can I be approved prior to purchasing the property? * Will there be a pre-payment penalty on the loan? * Can you provide the names of five customers I can contact who have used your services? Even better, print the questions in a format members can use as they rate shop. With space for the loan officer’s name and the credit union’s number, members will have the information you want them to have (yours!) in front of them constantly as they surf online or flip through the Sunday paper making calls to your competitors. But even more importantly, by asking the right questions, members will be able to differentiate between the rate that looks better and the rate that actually is. You may be surprised by how many members come back to the credit union, not because your rate is the lowest, but because they know you care.