Customer Satisfaction In Mortgage Servicing:
Value Beyond "The Right Thing to Do"

By: Gina Pingitore, Chief Research Officer, J.D. Power and Associates

Over the years, many companies have focused on customer satisfaction by embracing the business adage that it is the "right thing to do." Increasingly, however, companies are being asked to quantify the value of customer satisfaction and are beginning to go to great efforts in the attempt to answer the real question—"What is it worth to have satisfied customers?"

Data from the J.D. Power and Associates 2006 Primary Mortgage Servicer Study,SM which has been combined with other independently published data,1 finds that mortgage servicers that "delight" their customers (these customers provide a satisfaction score of 10 on a 10-point scale) have notable advantages over mortgage servicers with lower levels of satisfaction. In this article, we address how customer satisfaction is related to a number of behaviors that directly impact financial outcomes, including lower loan servicing costs, more referrals, more repeat business, and greater share of wallet.

Efficiencies and Cost Savings
In an industry that is heavily commoditized by fixed revenue products, increasing profitability means decreasing cost—thus, there is little value to customer satisfaction if it does not result in cost efficiencies. One metric well known to impact cost is the amount of customer service contact.

The study finds that as a company's frequency of contact increases, there is a corresponding decrease in their overall level of customer satisfaction (Exhibit 1).

The relationship between better CSI scores and servicing costs was also examined. Given the finding that increased rates of contact correspond with decreased satisfaction levels, a relationship to overall loan servicing costs was expected. As demonstrated in Exhibit 2, the relationship is strong and negative—lower CSI scores are strongly associated with higher servicing costs.

Advocacy
A measure some financial service organizations are tracking is the percentage of customers recommending the brand. This concept is a simple way to document one benefit of delighting customers.

Results from the 2006 Primary Mortgage Servicer Study show that there is a strong, positive relationship between a company's satisfaction score and customers' likelihood to recommend the brand (r=.79). In fact, as can be seen in Exhibit 3, companies that score among the top performers (i.e., upper 20th percentile) have significantly more customers advocating their brand than they have customers dissuading others from using that company's product or service.

A related metric that is easier to translate into potential revenue is the actual number of positive versus negative recommendations given during the course of a year.

In the study questionnaire, loan servicing customers are asked how many actual recommendations (both positive and negative) they gave during the previous 12 months. Not unexpectedly, there again was a strong relationship between a brand's satisfaction score and the actual number of recommendations (Exhibit 4). That is, as satisfaction scores increase, so does the number of positive recommendations. Similarly, as satisfaction increases, the number of negative recommendations decline.

click chart to enlarge

Repeat Business
In a lending environment where the number of choices and ease of refinancing and obtaining a home equity line of credit and other home loans is increasing, companies that achieve a financial advantage are those with a significant proportion of customers willing to obtain more products in the future.

Customers of top-performing companies are twice as likely to use their provider for their next loan compared to customers of middle-performing companies, and nearly five times more likely than are customers of lower-performing companies (Exhibit 5).

Share of Wallet
If the satisfaction level is associated with increased product appetite, a relationship between satisfaction scores and the total number of financial service products customers have with their provider should be evident. When the average number of products acquired by customers of top-performing companies was examined, it was evident that top-performing companies obtain the greatest "share of wallet," more than double the number of products of customers of middle-performing companies and nearly three times more products than customers of lower-performing companies (Exhibit 6).

Summary
Certainly, some companies have justified efforts to improve customer satisfaction by relying on the marketing realization that it is seven times more expensive to obtain a new customer than to retain an existing customer. Other companies, however, need more specific information or want to use voice of the customer data to predict their growth in the marketplace.

The J.D. Power and Associates 2006 Primary Mortgage Servicer Study(SM) published on July 18, 2006, provides an in-depth look at the drivers of satisfaction in mortgage servicing and its impact on growth and customer commitment. To receive more information about this study, click here.

1. National Mortgage News Quarterly Report, 2003-2006. All data were aggregated at the brand level.

Source: http://corp.jdpower.com/special/finpower/finpower_0706/article0706.htm