Joe Mellman is the SVP and the mortgage business leader at TransUnion, overseeing the development and execution of the company's mortgage strategy and product suite. This includes a focus on helping mortgage and HELOC lenders improve their new customer acquisition, retention, cross-sell, loan product creation and refresh, origination, servicing, and capital markets functions.
Prior to his current position, Mellman held a variety of mortgage financial services and capital markets product management and strategy roles at TransUnion. Before joining TransUnion, he held positions in consulting at McKinsey & Company and PricewaterhouseCoopers.
Mellman spoke exclusively with MReport on how the first-time homebuyer is changing the housing market, barriers to homeownership, and if recessionary fears could impact their decisions.
- Do you feel that rising home prices will continue to be a barrier to homeownership for millennials in 2020?
So, I think there are a few things. One is home prices are projected to keep going up, but they're going to go up at a slower rate than they have been. I think that's a particularly important fact when you couple it with the fact that recently, we are at all-time or near all-time lows, for unemployment and the fact that real wage growth over inflation has recently actually been positive. Wages are actually growing faster than inflation. That's projected to remain positive, so I think that while high home prices are definitely a barrier, the fact that we have this low unemployment and that wages are going up above and beyond inflation are some of the things that are driving consumers to be able to enter homeownership.
Now, lower home prices would mean even larger growth. But as it is, I think we're still going to see some really positive growth over the next three years. But here's the other interesting point is that I would couple that with is this financial gap. We did this survey and we talked to a bunch of people that self-identified as not currently owning a home but planning on owning a home in the next three years. That they cited a few factors on what was going to delay them in buying a home.
The number one was down payment. Number two was a more steady job. Number three was that home prices were too high. And number four was that their credit score was too low. And when you look at each one of those, the reality is is that there are programs out there that are specifically geared towards consumers to address those needs. And so, one of the things that we asked about people's knowledge about lending products. And 66% of our respondents said they were not familiar with Freddie Mac or Fannie Mae programs, which have a lot of programs that are geared towards first time home buyers.
Fifty-five percent said they were not familiar with FHA programs and 34% said they were not familiar with any financing options at all when it comes to getting a mortgage. It points out to the fact that if we take some of the specific barriers that they cited like high down payment required when you drill into that 75% of our respondents said they think need a 10% or greater down payment. There are agency programs and FHA programs who are three percent and 3.5% down payments.
It's potentially a financial gap, but it's also potentially a knowledge gap. Two other examples are if you look at credit scores, a third of respondents felt their credit score was too low, but the reality is that the FHA has programs that will accept credit scores down to 500. You don't need, necessarily, the credit score of 620 or 680 that a lot of us have in our mind. I just say the last example is 50% of our respondents think, thought they needed either low or no existing debt. But, as we know, agencies accept 50% debt to income.
- How have the millennial or first-time buyers impacted the housing market?
I think there's a couple of things. One is, especially when we talk about younger people, I'll point out that over the last 10 years, we've heard this narrative around younger people perhaps not being interested in being homeowners. What we're seeing now is very clear that's not the case. Young people are motivated to become homeowners. And, in fact, some of the behavior we've seen over the last 10 years could be more of a function of just being in pretty trying economic times.
That's one thing is just we should acknowledge they are interested. They're much more tech-savvy and they are a generation that expects a certain response and consumer experiences similar to what they see in other industries. Even though Uber is not a mortgage company, right? And Amazon is not a mortgage company, these are the experiences that younger consumers come to expect in any kind of transaction even outside of that sphere.
You're seeing the pressure on the ease and accessibility that they're used to in other industries and some of the pressure is being felt on the mortgage industry. There also appears to be a clear desire on younger consumers entering the mortgage market for education. And so, it shouldn't be read the wrong of saying, "first-time homebuyers just want to buy their home on their phone and not talk to anyone." I don't think that's the case. I think home buyers actually do want to seek out proper education and proper guidance and that absolutely includes in-person discussions, but it should be done as they need it and as they're able to consume it. Along with good technology experience. The good technology experience cannot replace a consultative approach with them.
- Do you foresee mortgage continuing to drop?
We might get one or two more drops, maybe even before the year is up, but it's hard to say. I'm not sure how much more dropping we're going to see over the next year. The general consensus is that we'll remain relatively low. It's hard to know exactly, of course, but I think we may see one or two more drops. We'll probably, for the near term, remain in a relatively low-interest rate environment.
There's actually a kind of an interesting corollary with that, which is that consumers have been kind of refinancing into these lower interest rate products, one of the things that we should be paying attention to in the out years is how sensitive these borrowers are going to be to an increase in prices, or increase in interest rates. What we could see is that consumers right now that are in their first homes, their starter homes, and they're locked in at a low-interest rate. If interest rates do tick up, but eventually they might. When they do tick up, what's going to happen to the housing supply of all those consumers that are already in the "starter homes”?
If they're locked into a low-interest mortgage, it's more unlikely for them to move up into the more expensive home unless they're going to be less supply that's freed up for new market entrants that want that first. That's something we'll have to keep an eye out in the out years.
- What are your thoughts on recessionary fears impacting the first-time homebuyers’ outlook on the market?
I suspect that given that unemployment is so low and given that, in general, with real wages being above inflation, I suspect that the limiting factor right now is much more on the supply of starter homes and supply of affordable homes. That's what's limiting it. I don't think right now we're facing any headwinds from fears of a recession.
When it starts affecting unemployment and, or if, it starts affecting wages, then I think the equation will change. But until that actually happens, again, because I think demand on the affordable home side is so outstripping supply at this point that I don't think it's having a material impact.