One of them, holding an iPhone aloft to punctuate her point, believes the formula is simple: smartphone = millennial. A man at the corner of the table, resisting the urge to brandish his flip phone, insists, “Snapchat! The answer is Snapchat!” Someone else shouts, “They’re just so entitled. They want everything handed to them on a silver platter.” Everyone nods in agreement with this team-building consensus.
In what has become a familiar ending to such meetings, they look around at each other for a few more minutes before deciding to double their Facebook posts for the month. As they’re getting up, the guy at the corner yells, “Make sure you do a Snapchat too – trust me.”
Some bank executives talk about millennials as if they’re trying to sell mortgages to a flock of penguins rather than a group of human beings born in a particular decade. I’ve come to consider myself part of a sliver of the population uniquely situated between the millennial generation and the preceding generations – those of us born from 1980 to 1983.
During high school and our first years of college, we didn’t have smartphones, we didn’t send texts, and we didn’t have Facebook. But, toward the end of college and during our first years in the workforce (2002-2006), we were the early adopters of these technologies. As they’ve grown to become a constant part of life, every industry has worked to adapt its products to this changed landscape. In this regard, the mortgage industry is no different, but it still struggles to define an effective strategy.
With the oldest millennials feeling their fortieth birthday creeping up, it’s time we solved the riddle. Just what kind of mortgage experience do millennials demand?
At the core, millennials want the exact same experience their parents did when they bought their first homes in the 1970s and ’80s. Methods may have changed, but millennials want the same three things that all mortgage customers want:
- A competitive price
- A convenient process
- A comfortable feeling
The first two, price and convenience, are not so different from the experience a customer seeks when buying a shirt. Today, a shopper can buy one from Amazon in minutes at a price he knows is competitive, without having to drive around town to compare options.
The main difference between the mortgage shopper and the shirt shopper is that the mortgage shopper has a powerful need to walk away from the purchase feeling comfortable. He often starts the process with the anxiety of not understanding the mortgage product (sometimes even the basics) and fears someone is going to take advantage of his lack of knowledge. He feels the vulnerability of explaining a late payment in his credit history from three years ago. He’s hesitant to share the details of his income and net worth with a stranger. If he decides to shop around, which is financially prudent, multiply these anxieties by a factor of three or even five.
Let’s take a look at how our industry is progressing with all three fundamental desires of a mortgage shopper:
A Competitive Price
With the transparency of Amazon’s marketplace, a shirt shopper will find a more competitive price today than he would have walking into a mall in 1995. In the same way, a mortgage customer can now compare rates online.
While online rate shopping is a definite win for consumers, receiving multiple personalized quotes often comes at the expense of privacy. This is a non-monetary cost that should not be overlooked when discussing price. Over the coming decade, all industries, including the mortgage industry, should expect substantial changes to online privacy laws.
Europe has already taken a big step in protecting consumers by approving the General Data Protection Regulation (GDPR). Regulations aside, receiving fifty calls from seven banks over a ten-day period is not a great customer experience. Can this approach be an effective way to originate mortgages? Yes, absolutely, but is it an experience that will elicit rave reviews from millennials, who are starting to demand stronger online privacy protections?
A mortgage is unique because its price is less straightforward than that of most goods. The mortgage industry is the poster child for information asymmetry, a nerdy economics term that simply means that one party has a significant information advantage over the other in a transaction. In the mortgage industry, the complexity of the process, uneven access to markets, and nuances of the mortgage product itself result in significant information asymmetry.
The loan officer almost always has a dramatic information advantage over the customer, and this imposes an enormous responsibility, not only on the loan officer, but also on the industry. We should expect to move toward more price transparency and price simplification as technology drives all industries toward increased customer empowerment. The total five-year cost displayed on the loan estimate is a good starting point: one number expressed as a dollar amount over the reasonably expected average life of a mortgage. Additional price transparency proposals are:
- require all mortgage and title insurance to be lender paid;
- require appraisals, credit reports, and flood certifications to be lender paid;
- eliminate all origination charges, except bona fide, borrower-requested discount points;
- eliminate lender credits;
- develop a financial instrument that shifts the burden of required hazard insurance to the lender, locking in long-term annual rates.
All these costs, absorbed by the lender, would be aggressively shopped and passed through to the borrower with a more transparent, albeit higher, interest rate. These proposals would alleviate the anxiety almost all customers inevitably feel the moment they turn to the second page of the Loan Estimate. You can make the argument that each of these individual proposals limits the borrower’s choices. Collectively though, too many choices create confusion and give lenders more levers to decrease price transparency. The benefits of choice are outweighed by lost price transparency.
A Convenient Process
Staying with our shirt example, Amazon has also dramatically improved the convenience of selecting, ordering, and receiving a shirt. Click, click, click, boom. There’s a box with a shirt inside sitting at your door when you get home a day after ordering it. But with a mortgage product, there’s a difference that’s important to understand when thinking about convenience.
An early mentor once brilliantly explained to me another unique aspect of a mortgage. “A loan,” he said, “is the only thing a customer will buy that the seller will want back.” This means that in selling their products, mortgage companies require much more from customers than do other types of businesses. Most purchases require only a quick swipe of a credit card.
Our industry is inherently more inconvenient for the customer. Companies and loan officers who fully understand this factor and properly set realistic expectations will have greater success than those who wait for the customer to figure it out on their own. The industry has recently seen multiple improvements in making the process more convenient.
Companies are simplifying many parts of the document-collection process by using API technologies like Plaid and Yodlee.
Other companies, including Blend, Roostify, Cloudvirga, and Quicken, are developing incredibly user-friendly interfaces that integrate these API technologies with credit bureaus, pricing engines, industry-leading loan-origination systems, and other proprietary technologies.
Botsplash is another great solution that has focused their efforts on chat and messaging innovation as a way to increase customer convenience and workflow efficiency.
With a few clicks – and the customer’s consent – bank statements and tax documents can be retrieved electronically, eliminating the need to scan, download, or fax them. (A quick note. If you think faxing is still acceptable, you are probably the guy at the corner of the table yelling “Snapchat” with a flip phone in your pocket.)
There are still bumps in these automated processes; if, for example, customers are unwilling or unable to provide their financial documents in this way, they are often kicked back to the traditional process, which means companies are required to maintain three document-collection workflows: fully automated, partially automated, and traditional.
Once a customer sends her documents to a company, whether through an automated API solution or by fax, she may feel stuck with that particular company, because who in their right mind would want to go through this exercise multiple times? This situation may be an advantage for the mortgage company, but we’re talking about how to improve the overall mortgage experience for the customer, and a stuck feeling is not a good one.
The focus over the next decade should be to accurately balance the efficiencies of these technologies with anxiety-alleviating human consultation. Robots are not going to originate a mortgage anytime soon, and even if they could, and even if the line for an MLO NMLS number on the Loan Estimate and Closing Disclosure disappeared, is that what people really want? Is that what millennials really want?
Here’s some homework: Think of a 25-year-old you know. Ask that person two questions:
- “Would you buy a shirt on your phone?”
- “Would you buy a $300,000 mortgage on your phone?”
The answers may change how you feel about the future of our industry.
A Comfortable Feeling
The real estate and mortgage industries are still deeply defined by people: “You should use my Realtor. He helped us at every step of the process. I trust him.” “I used Karen for my mortgage – she was awesome! Here’s her email address.”
Why does a mortgage customer rave about his loan officer? It’s not necessarily because he got the best price, and it’s certainly not because his bank statements were queried by high-powered servers for repeated deposits to validate income. A rock star loan officer is one who makes customers feel comfortable – comfortable with the process and comfortable walking away from the closing table.
Getting a mortgage is a very personal experience for most people. Rock star loan officers understand this and focus on ways to ease the customer’s anxieties. They work to make sure their customers aren’t making irresponsible decisions. They’re experts who use their experience to judge what irresponsible means. They provide options and explain the pros and cons of each option clearly. They recommend a product and explain exactly why they’re making that recommendation. They are advocates.
It’s common for a customer to get a great price on their mortgage but still walk away from the closing table feeling unsure and uneasy – uncomfortable. They may not even know it was a great price. On the other hand, a customer who paid a higher price may walk away from the closing table with their head held high. While the first customer had a below-average loan officer, the second had a rock star who instilled confidence that they’d made a solid choice.
This isn’t to suggest that comfort is more important than price, and it’s not an attempt to put a value on that feeling, although it is a very real phenomenon in the mortgage industry. Very few products share this characteristic, and, as discussed with respect to information asymmetry, it’s not something that should be used to take advantage of a customer by providing fake assurances that aren’t founded on truths. Great loan officers cater to their customers’ vulnerabilities rather than trying to exploit them.
Some of the best success stories in technology have revolved around connecting people, not eliminating people. Uber connects drivers with ride seekers. Airbnb connects travelers with people who want to rent their house. LinkedIn connects job seekers with people who are hiring.
How will the mortgage industry connect mortgage customers with mortgage loan officers? Here’s a hint. They don’t want you flooding their Instagram and Facebook timelines. This should be the goal of the mortgage industry over the next decade. Connecting people with people. Not people with companies. People with people.
Putting the Pieces Together
Remember, millennials are not so different from other generations. If you were born in the 1950s, your parents probably didn’t approve of The Beatles or Led Zeppelin. If you were born in the early 1970s, what did they think about Madonna?
Still not on board? If not, maybe you’ll appreciate this quote:
“The world is passing through troublous times. The young people of today think of nothing but themselves. They have no reverence for parents or old age. They are impatient of all restraint. They talk as if they knew everything, and what passes for wisdom with us is foolishness with them.”
Does this sound about right for millennials? The words are from a sermon preached by Peter the Hermit in 1274, nearly 750 years ago. Before we are too tough on an entire generation, we should understand that millennials share the same anxieties about the home buying process as previous generations and, and at their core, want the same type of mortgage experience we all do – one that makes us comfortable.
“What is the best possible mortgage experience for the customer?” This question is the driving force behind Bundle, a new customer-centric platform that connects mortgage shoppers with loan officers. Bundle is a mortgage marketplace where home buyers can connect with their favorite loan officers based on recommendations from friends, family, and real estate agents. We are looking to partner with forward thinking loan officers, mortgage companies, real estate agents, and real estate companies.