Since the Great Recession of nearly a decade ago, the American economy has gradually recovered and is currently in a state where most indicators (jobs, markets, etc.) are showing healthy signs. In theory, homeownership should increase during this period as people resume steady income and look for stability of their housing and investments. And yet, outside of pockets of extreme growth, such as Silicon Valley, first-time homeowners appear to be holding onto their money rather than putting it into a home. The average age of first-time homebuyers is historically 33 years old. The range of the millennial generation is from the ages of 20 to 36 in 2017. So while millennials aren’t quite yet the primary first-time home owner group, they are quickly going to be the prime target. But all the research shows that these buyers are going to have very different expectations of the buying, mortgage and closing processes.
In a 2015 survey by Fannie Mae [1], 42 percent of those ages 18 to 34 said they didn’t know what lenders expect of them, and 73 percent were unaware of lower down-payment options that range from 3 to 5 percent of the home’s purchase price, as compared with the commonly cited lender preference of 20 percent. In the traditional model, education of borrowers was provided by the trusted advisor model, where the loan officer and the real estate agent provided the advice and expertise. However the millennials distrust this model and as a rule, reject a centralized authoritative model. Current research shows that millennials prefer to be in the driver’s seat and control their own education and flow of information. They generally will not utilize email, live chat, or phone services to get answers to their questions. They require that they can drive their own solutions and quickly answer their own questions or solve their own problems. If they cannot, they will quickly abandon, switch to another solution, and write a scathing negative review.
The other key factor to consider is their inherent distrust of large organizations and Wall Street in general. The foreclosure crisis, and the media frenzy around the crisis, was front and center during key years for millennials. This has framed the way they will shop for and make choices about mortgages. Transparency, clarity and security will be critical for these new buyers.
How does the mortgage industry need to change to ensure we can serve the next generation?
Self-Service Technology - The days of call centers, auto-dialers, email blasts, and mailings are gone, replaced with self-service technology. Millennial consumers are going to be found through social media, web advertising, search engines and mobile apps. This requires that marketing and sales efforts be re-tooled, in many cases completely. Millennials also have different communication and buying habits and are much more interwoven with the online culture. They have grown-up with instant information at their fingertips, they expect an on-demand life with a seamless shopping experience, and they abandon your site quickly if they are not given instant answers. And most importantly, Millennials do not hesitate to quickly and aggressively criticize or lambast brands and companies that have failed to provide the experience they expect. They can be your company’s greatest advocates or worst critics in real-time. Given this new type of consumer; how important will sales reps, loan officers and relationships with real estate agents be in the future? A strong argument can be made for a significant reduction in the value of these sales channels.
Trust and Transparency - The banking and foreclosure crisis and the associated political and news cycles have effectively villainized the mortgage industry. Millennials have very strong emotional ties to brands and companies, with their “heroes” tending to be countercultural companies. Google, Apple, Uber, Yelp, Microsoft, Twitter, SnapChat. Which do you think is more appealing to this generation? An Apple Mortgage or a First Bank Mortgage? And why? They believe that the Apple brand can be trusted over their parent’s bank because Apple is easy to use, environmentally and politically conscious and transparent in how it works. The media has hyped the “hero” factor of companies like Google and Apple and villainized Wells Fargo, Bank of America and others.
Does this mean traditional mortgage companies cannot compete in the new millennial economy? Perhaps. The single most important aspect to building trust in any scenario is transparency. Fortunately blockchain technologies are emerging which will bring transparency to the process. A simple search of latest technology news shows clearly that blockchain has been heralded as the next “big thing” for financial technology. Experts claim that blockchain comes second only to the invention of the web in its disruptive power which seems to be reshaping every aspect of financial markets. Blockchain is quickly confirming that it will be a complete game changer which, sooner or later, will revolutionize the way we all think about transparency between business and consumers.
What does this mean for the future of mortgage lenders?
The future is clearly going to be owned by those lenders who understand what attracts Millennials to a specific brand. Brands that focus on experience and build trust are rewarded generously. Social media is centered on the online experience this group of consumers has with those brands. Great user experiences will pay for themselves many times over. Investing in creating the greatest user experience will be ultimately more valuable than the quality of the sales force.
With real-time feedback and ability for consumers to instantly rate your organization, nothing is more important than generating trust and transparency. Adoption of blockchain solutions immediately create both. Within the next few years companies who adopt blockchain will thrive, expand and dominate. The ones who don’t? They will find themselves on the losing end of market share. What happens when you fail to see the next technology wave coming? You just need to look to the examples of Travel Agents (Expedia), Cable TV and Video Stores (Netflix), Encyclopedias (Wikipedia), Music (iTunes), Book Stores (Amazon). All these industries utterly and catastrophically changed due to their failure to see the power of the Internet to change their business.
Does the mortgage industry yet recognize the dramatic change that is coming with blockchain? Or are we going to go the way of Borders and Blockbuster?