Business Process Services White Paper Transforming the Mortgage Lending Process through Social Media
About the Author Ramani Balakrishnan Ramani Balakrishnan is a domain consultant in the Transformation Solutions Group within the Business Process Services unit at Tata Consultancy Services (TCS). He helps transform the way TCS delivers value to its global clients, and leads innovation and thought leadership in the areas of client engagement and delivery. Ramani has 25 years of experience in IT, banking, and mortgage services, of which 18 were dedicated to the residential mortgage lending domain. Ramani has an MBA in nance from the School of Business, Rutgers University, New Jersey. He also has a postgraduate degree in physics.
Abstract Over the last few years, mortgage lenders have increasingly been focusing on improving customer experience. Lenders are moving away from the traditional product-centric business model towards personalized, customer-centric offerings. They have also begun rethinking the traditional approach to interact and engage with tech-savvy borrowers who have instant access to diverse knowledge resources. Lenders are turning to social networks such as LinkedIn, Facebook, and Twitter. These networks are also changing the way houses are bought and sold, with borrowers seeking recommendations from social media acquaintances and peers for making important purchasing decisions. Lenders need to design holistic social media strategies in conjunction with traditional marketing channels to build their brand and engage customers. They can also use social media to reach prospective borrowers, enable faster property and loan search, determine creditworthiness, and provide updates on the latest rates. This paper outlines the importance of social media and offers tips on it that can be used to simplify the mortgage process and to enhance customer experience. It also offers recommendations on what lenders need to do to mitigate the risks associated with social media.
Contents Why the Mortgage Industry Needs to Recognize the Growing Importance of Social Networks 5 Leveraging Social Media to Drive Better Outcomes 5 Implementing Effective Risk Management for Social Media Programs 7 Building a Comprehensive Social Media Strategy 9 Utilizing Social Media to Engage Customers and Boost Conversions 9
Why the Mortgage Industry Needs to Recognize the Growing Importance of Social Networks For a borrower, procuring a home loan can be a very complicated and time-consuming process that involves multiple activities. These include lender selection, prequalification, application submission, and the necessary disclosures. Similarly, for lenders, activities such as underwriting, processing, secondary marketing management, and closing can be complex and cumbersome. It is evident that lenders need to find more cost-effective ways to not only connect with borrowers, but also drive efficiencies across the mortgage lending process. Social media can prove beneficial in meeting marketing and customer service requirements. The key differentiator of social media is that inputs come directly from customers. Moreover, instead of one-way communication, it supports dynamic, real-time, and interactive communication. 1 A recent report highlights how a growing section of marketers increasingly plan to focus on social media: 66% of marketers plan on increasing their use of Twitter, YouTube, and LinkedIn 93% of marketers are using Facebook, 68% want to learn more about it, and 62% plan on increasing Facebook activities Lenders that leverage this trend stand to gain several benefits including deeper customer engagement and higher customer satisfaction. Leveraging Social Media to Drive Better Outcomes Lenders can use social media to accurately target prospective borrowers. They can use data related to personal interests, demographics, approximate incomes, spending patterns, and geographical location to customize plans for customers, thereby improving conversions. Social media also offers lenders an opportunity to use customer data to influence credit decisions and collections, and tailor prices to their specific needs and circumstance. Given below are a few ways in which mortgage industry players can use social media to drive better business outcomes. 1 Social Media Examiner, 2015 Social Media Marketing Industry Report, May 2015, Accessed December 2015, http://www.socialmediaexaminer.com/socialmediamarketingindustryreport2015.pdf 5
Leveraging social networks to expand reach Social media helps lenders expand their reach by connecting with motivated customers, thus getting high-quality leads, which helps cut back on costs associated with traditional marketing campaigns and data collection. Building tailored and effective campaigns A personalized campaign from lenders can be very useful in improving customer experience. This can be done by tracking borrowers' online behavior to build specific personal profiles and create campaigns. Social media also helps lenders incentivize borrowers through referral programs and collect feedback through surveys. Networking and staying current with trends Lenders can leverage professional networks such as LinkedIn and micro-blogging sites such as Twitter to connect with their counterparts across the globe to understand latest trends, technologies, business models, and compliance requirements. Several small as well as big lenders are using these sites to 2 network professionally and offer relevant tips to customers. Taking informed credit decisions by accessing alternative data sources Lenders are looking for ways to improve loan quality and the productivity of their staff, as well as increase their revenue and profit margins. Relevant demographic and financial data is crucial to meeting these objectives. Currently, lenders get data either directly from borrowers or with the help of specialized agencies such as credit reporting companies. However, lenders need to think beyond traditional communication channels and explore alternative data sources. For example, they can access location data from social networks to assess how long a borrower has stayed in a particular house or locality. In addition, borrowers' participation and comments on a bank or financial institution's social media pages can disclose valuable information on account relationships. Lenders usually face challenges with respect to checking credit history and determining borrower eligibility. Traditional data sources such as bank statements might not provide enough information. Most lenders use the FICO score for decision-making and require co-borrowers or co-signers to ensure eligibility. Many peer-to-peer lenders leverage data from social media to complement traditional data that may not be sufficient to offer the required insights. This can improve their lead-to-loan conversions and thus improve their revenue, margin, and overall market share. Demonstrating expertise to build trust and enhance customer loyalty By sharing relevant facts and advice, lenders are able to foster a trust-based relationship with customers and boost brand loyalty. Social media also offers a real-time platform for borrowers to explain paymentrelated challenges so that lenders can help develop workout plans, thus improving customer relationships. 2 Twitter.com, Total Mortgage, https://twitter.com/totalmortgage, Accessed December 2015 6
Helping borrowers interact and share information By creating an online community for borrowers to share their experiences with other first-time home buyers, lenders can create a favorable brand image and higher brand recall. Also, positive experiences and feedback from borrowers can be used to build a referral program and improve word-of-mouth marketing. Enabling proactive fraud detection Social networks help identify fraudulent activity early in the loan life-cycle by using publicly-available information. Lenders can check for possibility of fraud and impersonation by cross-referencing the 3 customer's profile picture in the paperwork with that on the social networking site. Lenders can also monitor if customers have listed the same employer on professional networking sites. Facilitating direct communication and personalized campaigns by brokers Brokers can leverage social media to drive engagement by sending periodic communication and alerts through channels such as email and mobile as per the borrower's preference. Other tools such as text, voice, and video can also be effectively used to proactively connect with the borrower. Brokers can also set up tracking mechanisms for online contacts and create individual profiles for each. Many brokers incentivize borrowers through referral programs, which is now easier through social media. It is also easier to get responses for surveys and questions on social forums. Most importantly, brokers and correspondents can connect with their counterparts across the industry and across geographies to understand latest trends and updates on technology, regulatory compliance, and business models. Implementing Effective Risk Management for Social Media Programs Every stakeholder in the mortgage industry lenders, borrowers, investors, brokers, correspondents, appraisers, settlement agents, mortgage insurance providers, and title agents can benefit from social media. However, using social media to attract and interact with customers can impact a mortgage 4 lender's risk profile. Lenders are required to comply with multiple regulations for disclosures and audit trails regarding social media. As per Federal Financial Institutions Examination Council (FFIEC) regulations in the United States, every financial institution must have a risk management program in place that allows it to identify, measure, monitor, and control risks related to social media. Lenders must also comply with the Fair Credit Reporting Act (FCRA) and Financial Industry Regulatory Authority (FINRA) to avoid risks associated with using social media. 3 Purview for Mortgage Lenders, Reduce Mortgage Fraud Using Technology!, April 2015, Accessed December 2015, http://purviewforlenders.com/reduce-mortgage-fraud-using-technology/, 4 FFIEC, 2013 Social Media: Consumer Compliance Risk Management Guidance, December 2013, Accessed December 2015, https://www.ffiec.gov/press/pdf/2013_dec%20final%20smg%20attached%20to%2011dec13%20press%20release.pdf 7
Information privacy and compliance with laws governing consumer disclosures and advertising are additional factors to be considered while designing a risk management program. For instance, conducting social media contests or online raffles to offer cash prizes, or providing fee discounts by referring settlement business is a clear violation of the Real Estate Settlement Procedures Act. According to the Consumer Finance Protection Bureau (CFPB), a supervised entity must develop and maintain a sound compliance management system that is integrated into the overall framework for product design, 5 delivery, and administration. Lenders need to therefore have a clear social media strategy and policy that complies with these regulations. Non-compliance or improper use of social media could lead to legal repercussions, including hefty fines and penalties. In 2014, the CFPB took action against Amerisave Mortgage Corporation for engaging in a deceptive bait-and-switch mortgage-lending scheme that 6 harmed many customers. The company and its affiliate were accused of advertising inaccurate interest rates and terms on banner ads and in searchable rate tables on third-party websites. Amerisave agreed to refund $14.8 million to consumers and pay a fine of $4.5 million. In addition, if a lender conducts social media contests or online raffle to offer cash money or fee discount for those who referring settlement business, then this is a clear RESPA (Real Estate Settlement Procedures Act) violation. Employees of lending institutions unaware of these clauses might use these tactics to generate leads and the lending institution end up paying hefty fines and penalties! In an industry technology conference last year, Erik Hawkins, the head of U.S. sales for financial services at 7 Facebook reiterated the need for managing compliance risks. He said that while Facebook would set up conversations with legal teams, financial institutions would have to take responsibility for maintaining audit trails and ensuring compliance. Lastly, lenders should implement proper governance to ensure that their agents or loan officers do not publish sensitive information or content that does not comply with regulations. Former employees may also post misleading information for which the mortgage lender could be held responsible and liable. Evaluating and deploying technology solutions that enable legal, compliance, and risk management teams to automate social media monitoring and generate risk-related alerts can prove be an important competitive differentiator. It can help mortgage lenders enhance customer engagement, improve business outcomes, and mitigate potential risks. 5 Consumer Financial Protection Bureau, Supervision and Examination Manual, October 2012, Accessed December 2015, http:// les.consumer nance.gov/f/201210_cfpb_supervision-and-examination-manual-v2.pdf 6 Consumer Financial Protection Bureau, CFPB Orders Amerisave To Pay $19.3 Million For Bait-And-Switch Mortgage Scheme, August 2014, Accessed December 2015, http://www.consumer nance.gov/newsroom/cfpb-orders-amerisave-to-pay-19-3-million-for-bait-and-switch-mortgage-scheme/ 7 National Mortgage News, Social Media Marketing Brings New Risks to Mortgages, May 2014, Accessed December 2015, http://www.nationalmortgagenews.com/news/origination/social-media-marketing-brings-new-risks-to-mortgages-1041758-1.html 8
Building a Comprehensive Social Media Strategy Mortgage lenders need to create a social media strategy that is in alignment with both their business as well as compliance goals. Here are some key aspects to remember while drafting an effective strategy: Ensuring compliance Guidelines pertaining to credit standards and consumer protection regulations must be developed in accordance with the Equal Credit Opportunity Act, in case social media data is used for decision making. Also, lenders must ensure consistency when interacting with customers and comply with fair lending procedures (as laid down by the Fair Lending Act). Automating tracking of social media feeds Lenders must create mechanisms to automatically track and monitor the content being posted on social media. This should include a rule-based alert mechanism to identify potential risks, in addition to performing periodic reviews. Creating an effective complaint management process Mortgage lenders need to set up an effective complaint management process to address any complaint or feedback to prevent it from going viral on social platforms. This can be facilitated by putting processes in place to analyze complaints posted on social media, and distinguishing between real and perceived inaccuracies. This will help prevent negative perceptions regarding the lender's decision-making processes in complaint scenarios. Ensuring procedures that support the overall strategy Lenders must deploy a robust governance structure with clearly-demarcated roles and responsibilities for each stakeholder, including the senior management. They must identify Key Risk Indicators (KRIs) and Key Performance Indicators (KPIs) for continuous assessment of risk. In addition, structured and periodic training or refresher programs can help ensure effective implementation of social media policies and procedures. Utilizing Social Media to Engage Customers and Boost Conversions Social media is a valuable tool to improve outcomes such as lead-to-loan conversions as well as revenue, profit margins, and overall market share. Lenders need to actively integrate social media data into their business model to compete effectively, generate new business, and improve customer experience. While the benefits of using social media are many, as with any new technology, lenders need to manage potential risks through company-wide best practices and a structured control mechanism. Doing so will help industry players maximize the benefits offered by social media, while mitigating potential pitfalls and risks. 9
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