Using E-Mail to Turn Leads into Closings

May 2, 2008 - As Published in American Banker.

American Banker

CASE STUDY

American Banker | Friday, May 2, 2008

By Allison Bisbey Colter

A year and a half ago Phillip Baltazar, the founder, chairman, and chief executive of America Funding Inc., had a problem.

His San Diego mortgage brokerage was spending more than $100,000 a month on leads from IAC/InterActiveCorp's LendingTree, but a relatively small percentage of them were being converted into loans.

America Funding was one of the first pure mortgage brokerages to join LendingTree's network, and in the early days the firm's ratio of loan closings to leads generated through LendingTree applications was as high as 33%. But by the second half of 2006 that figure had fallen to between 4% and 5%.

Some of the drop was inevitable as America Funding scaled up from a few hundred leads a month, all in the San Diego area, to between 1,000 and 2,000 in different markets. (It has offices in McLean, Va., and Cabo San Lucas, Mexico.) "When they were scarcer, we chewed on them more," Mr. Baltazar said. "My guys would get in the car and go to people's homes, to soccer games."

The brokerage also was feeling the heat from competition, particularly since LendingTree acquired one of the lenders in its network in 2004. The low close ratio not only was hurting profitability, but also threatened future business prospects. LendingTree and other lead aggregators make the bulk of their money when a loan closes, "so they want to give leads to people who close," he said.

"...the campaigns are less expensive than sending out fliers or newsletters through the mail."

(A spokeswoman for LendingTree says that America Funding has been a partner in good standing for some time. "We've definitely had a great relationship, and we hope it continues.")

Even worse, sometimes America Funding customers would refinance with a competitor within a few months. If that happens within 120 days or so of the original loan's closing date, mortgage brokers are generally obliged to pay the lender back the fee they have earned.

"Here I was converting a LendingTree consumer into an America Funding borrower, but in their mindset, they still got … [the loan] from LendingTree," Mr. Baltazar said. America Funding was not living up to its mission statement — to be "your broker for life" — because so much new business was coming in that it had no time to market to older prospects or to people who had gotten loans through the brokerage in the past, he said.

In response, Mr. Baltazar turned to e-mail. He hired SoftVu LLC, an Overland Park, Kan., software developer that specializes in automated e-mail marketing, to develop a series of campaigns to help America Funding loan officers stay in touch with customers for several months or more. The e-mails are sent at certain points in the loan application process or after certain intervals of time.

Brad Strothkamp, a principal analyst at Forrester Research Inc., says this type of marketing is fairly common for lead generators but pretty novel for lead buyers.

More typically, companies in America Funding's position send only a single confirmation e-mail, he said. "I'm a big believer in more contact in the fulfillment process. There's a lot of need for exactly what they are trying to do."

Mr. Baltazar says the campaigns are less expensive than sending out fliers or newsletters through the mail and help loan officers focus their efforts by identifying which of the thousands of older prospects may still be in the market for a loan.

In the past America Funding had used e-mail to stay in touch with clients, but to a much lesser extent, and the messages were not nearly as targeted, he said. "We'd just send out quarterly e-cards" timed around holidays and other events, and he knew his company was missing opportunities.

... [The Salesperson] gets a notification through email or text message.

For example, after sending out one batch of holiday e-cards, America Funding heard from a borrower whose loan had closed two months earlier. There had been a death in the family, and the couple had received a cash-out refinancing from a competitor so they could pay for the funeral — incurring a $40,000 prepayment penalty in the process.

"She said, 'I wished I'd had gotten a card from you earlier,' " Mr. Baltazar said. "Her husband, in an emotional state, had picked a lender out of the phone book. If we'd been in touch on a more regular basis, I could have gotten them something" that would have allowed them to avoid the penalty, such as a home equity line of credit.

America Funding now sends out a series of over 30 e-mails timed at certain intervals or coordinated with changes in a loan application's status. The first one, which potential borrowers receive after filling out an application on LendingTree.com, contains price quotes and a streaming video message from Mr. Baltazar thanking them for their business.

Consumers who do not complete an application with America Funding the same day will receive up to five additional e-mails over the next 15 days to pique their interest with a mortgage payment calculator, tips on debt consolidation, or an offer to meet or beat a competitor's quote.

When applicants authorize America Funding to run credit checks, the brokerage sends an e-mail assuring them that it will protect their privacy. Mr. Baltazar said this assurance is important, because consumers who authorize a lender to pull credit reports from all three bureaus can be inundated with offers from other lenders. "Some are overwhelmed and stop the process."

Customers who complete the application get an additional e-mail notifying them when their loans are being processed by a lender and explaining the next steps. After loans are funded, customers get another e-mail asking them to fill out a survey and provide referrals.

... America Funding now sends out a series of over 30 emails timed at certain intervals or coordinated with changes in a loan application’s status.

Loan applications that have not been completed within 21 days are considered "stalled." That change in status triggers up to five more e-mails asking borrowers for feedback about the application process, providing updated price quotes, or just checking in.

The loan officer assigned to the lead knows when an e-mail is being viewed, because he or she gets a notification through e-mail or text message. America Funding says the setup is particularly useful for older leads, because the officer might not know otherwise whether the customer is still in the market for a loan.

"Before, with old leads, you'd have a stack to rifle through" and hope the person was available, said Chris Ross, a senior loan officer in America Funding's San Diego office. "At least when you get the notification, … you know it's a good time to given them a call or shoot an e-mail. They don't always answer, but it helps."

Kristina Klein, the SoftVu client manager in charge of America Funding's account, said an online newsletter her company produced for the brokerage in the first quarter cost $6,000, compared with the $8,990 it spent on a print version last year — before postage.

The lower cost persuaded America Funding to scale up the e-mails as business got tougher. Ms. Klein says the brokerage sent out 15,000 e-mails in the first quarter of last year, 30,000 in the second quarter, 38,000 in the third quarter, and 50,000 in the fourth quarter.

America Funding's San Diego office launched the campaigns at the beginning of last year, and its loan volume for the year rose 8.62%, to 752 closings. Closings fell by about a third at the brokerage's smaller McLean office, but Mr. Baltazar said this office experienced some growing pains as it doubled its staff and tested some new telecommunications software.

Another benefit: America Funding's Web address now pops up at the top of a Google search of the company's name. Mr. Baltazar says that before the e-mail campaigns, anyone searching for "America Funding" would get a bunch of links to sites that had nothing to do with his company.

The e-mail campaigns have increased the overall traffic to America Funding's Web site — a factor in the algorithm Google Inc. uses to rank search results. "The improvement has been night and day," Mr. Baltazar says. "We actually exist on the Web now."

The email campaigns have increased the overall traffic to America Funding’s Web site…"The improvement has been night and day," Mr. Baltazar says.

Since the e-mails go out automatically, there is no additional work for loan officers. Still, using e-mail to stay in front of customers only works if the loan officers follow up. Mr. Baltazar said he had to train his staff to start working the phones as soon as they learn someone is opening an e-mail.

"People resist change, no matter what it is," he said. "I had to hammer into them … when a notification comes in telling them a consumer is watching a video or opening a certain e-mail, if they didn't drop what they were doing and jump on the phone, they were shooting themselves in the foot."

Mr. Baltazar said he still monitors how soon loan officers call clients after getting a notification, and how the timing correlates with their close ratios. Tom Mataconis, a senior executive in Accenture Ltd.'s North American credit services practice, said the correlation should be pretty high.

"Particularly if you think about all the varied sources consumers are afforded to go out and shop around, you're going to want to get to a lead as quickly as possible and get a conversation going," Mr. Mataconis said. "You have to have the right conversation on the right topic … but assuming you are talking to them about what they want, the sooner you get through the application process," the better.

Mr. Ross, the loan officer, said he does not necessarily drop everything to pick up the phone. "It depends on what you're doing that day. You might be in the middle of an appraisal." However, he generally tries to follow up as quickly as he can.

Though he said he did not know how much the e-mail campaigns contribute to his close ratio, he cited at least one example where it clearly made the difference: A customer whose application had stalled received an e-mail saying America Funding would meet or beat any other loan offer she received. She e-mailed back to say thanks, though she had accepted an offer from someone else.

... [Phillip] credited the emails with helping to keep America Funding going at a time when so many of its competitors are out of business

"I called her to ask why, and she said, 'I prefer to work directly with a lender,' " Mr. Ross said. "That was … [an opening for] a conversation. … That was definitely a deal I got because she responded" to an e-mail.

Each month America Funding sends SoftVu a list of loans it closed, and these are checked against the e-mails the borrower viewed to determine which message are the most effective.

Occasionally, the messages are tweaked to make them more effective. In October the e-mail that goes out when America Funding pulls a borrower's credit reports was updated to include another video message from Mr. Baltazar, which the company felt was a "more humanized" approach.

Ms. Klein, the SoftVu client manager, said that since the change the percentage of recipients who opened the e-mail has climbed by more than half, to 54% in February.

The e-mail marketing has not inoculated America Funding from the steep decline in home values and turmoil in the credit markets over the past few months. The brokerage's close ratio slipped in the second half of last year as lenders reacted to turmoil in the credit markets by tightening their underwriting standards.

Also, a wholesale lender that was one of America Funding's biggest partners was acquired by another lender that is much slower to process loans. The first quarter was "very painful," Mr. Baltazar said. "We've got loans dying on the vine."

Still, he credited the e-mails with helping to keep America Funding going at a time when so many of its competitors are out of business.

"With marketing, you can't always bring it down to the last dollar of spending that resulted in this return. But from a macro point of view, we're certainly doing a lot better than 90% of people out there," he said.

Ms. Colter is a freelance writer in Maplewood, N.J.

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