Web Venture Aims to Help Lenders Keep Top Customers

After a five-year hiatus, veteran executive K. Terrence Wakefield is returning to the mortgage business with an Internet venture designed to help the industry's giants retain customers.

His new company has the backing of two financial services heavyweights, both based in Milwaukee: Marshall & Ilsley Corp. and Mortgage Guaranty Insurance Corp.

Mr. Wakefield, M&I, and MGIC are expected to announce today that they have invested $21 million in Customers Forever LLC, a privately held company. They declined to disclose the breakdown, but M&I's and MGIC's contributions are equal.

Mr. Wakefield, 50, played a key role in building the mortgage operations of Prudential Insurance Co. of America. He resigned from Residential Services Corp. of America, the holding company of Prudential Home Mortgage, in 1993, and spent three years developing and running a Milwaukee-area golf course. Norwest Mortgage acquired Prudential Home Mortgage in 1996.

His new endeavor is to tackle a problem that dogged mortgage bankers all last year: When rates fall and your borrowers refinance, how do you make sure they refinance with you and not end up in a competitor's servicing portfolio?

"Customer retention is something we've never done a good a job of in the mortgage business," Mr. Wakefield said. Customers Forever hopes to change that.

Here's Mr. Wakefield's pitch: A client selects a group of "most valued" customers whom it wants to participate. Lenders can select their own criteria for eligibility, though Customers Forever suggests they target borrowers who put at least 10% down when they bought their homes and have not missed or been late with a payment in 12 months.

The select borrowers then get formal "invitations" in the mail -- similar to wedding announcements -- to switch from a monthly statement in the mail to an on-line statement. To accept, the borrower simply goes to the lender's Web site and enters an e-mail address.

From there, the borrower can go the lender's private-label Web site anytime, day or night, and look at the on-line statement. It includes a lot of information that is not available in a regular mailed statement but which borrowers often call up to get. For example, the borrower can find out how much interest or real estate taxes he or she paid last year.

By eliminating postage and other costs associated with mailed statements, and reducing the number of calls that customer service representatives must field, Customers Forever estimates it can reduce the cost of servicing each loan by $5 to $7 a year -- or 10% to 15% for already efficient servicers.

The Web site will alert customers when they can save $50 a month or more by refinancing. If the customer chooses to refinance, the loan can be approved on-line in three seconds, with no human interaction -- subject only to a title insurance commitment.

This will protect big lenders' portfolios from "churning" by their brokers and correspondents when interest rates drop, Mr. Wakefield said. "The servicer has already paid for the loan. Why should it have to pay three or four more times?"

Of course, this year rates have risen, the refinancing market has all but disappeared, and mortgage companies have faced other problems, such as intense price competition and overstaffing. Customers Forever may find itself in a position akin to selling air conditioners in the winter.

Mr. Wakefield said that in a few months the Customers Forever site will also be able to originate second mortgages and home equity credit lines with the same ease and speed it now offers for refinancing first mortgages. Home equity is considered a "counter-cyclical" product: It tends to increase when rates rise because homeowners prefer to preserve the lower interest rates on their first mortgages.

Besides, servicers must grapple with the refinancing beast again sooner or later. "If they don't get prepared for that next cycle of refinancing by implementing products such as Customers Forever's, they'll face the same financial challenges," said Michael D. Hayford, executive vice president at M&I.

For MGIC, the largest private mortgage insurer, investing and participating in Mr. Wakefield's venture is part of a broader strategy of trying to help lenders retain borrowers, in order to win more insurance business, said Curt S. Culver, chief executive officer.

Other initiatives by MGIC on this front include an interactive voice response system called Defender, which helps sort calls during heavy refinancing periods, a direct-mail program, and a prepayment model that predicts borrowers' propensity to refinance.

MGIC will exclusively market Customers Forever's services to mortgage lenders, and the new venture will use the insurer's prepayment model to pinpoint refinancing candidates.

M&I's data processing unit helped design and build the Customers Forever application. It will gain economies of scale by handling data processing and electronic bill payment and presentment for the venture, Mr. Hayford said. "We have the infrastructure to support large volumes of transactions," he said.

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