By Ona Ngnoumen
Homeownership, with its visions of tree lined sidewalks and white picket fences, endures as a symbol of “The American Dream.” Multiple statistics corroborate that the “dream” is alive and thriving, including the results of the third annual “How America Views Homeownership Survey” conducted by Ipsos Public Affairs and Wells Fargo. Ninety-three percent of respondents still believed that homeownership is a significant accomplishment and 86 percent say homeownership is the realization of their dream. However, according to the Harvard Joint Center for Housing Studies’ 2016 State of the Nation’s Housing report, the U.S. homeownership rate has fallen to its lowest point in approximately 50 years.
What could explain the reason for this disconnect? While there are arguably multiple contributing factors to this decline, key considerations are the perception of the mortgage process and the mortgage industry being perceived as “difficult,” “confusing,” and “untrustworthy.” In several polls, the mortgage process has been rated more stressful than bankruptcy, divorce, childbirth and even bereavement.
The Consumer Financial Protection Bureau’s (CFPB) Consumer’s Mortgage Shopping Experience Report for 2015 identifies mortgage complaints third in volume after complaints regarding debt collection and credit reporting. These grievances stem from the following issues expressed by clients regarding the mortgage industry: a lack of confidence, communication gaps and a lack of industry investment in the client experience. Addressing these issues becomes crucial to repairing this relationship.
Client confidence has eroded as the mortgage process became an increasingly combatant relationship between the mortgage industry, borrowers and regulators. The already tenuous balance that once existed between these groups suffered a drastic decline with the housing crisis of the last decade and the “blame game” we witnessed as a result.
Currently the government is working to enact a correction to the issues raised during the housing crisis through increased regulation. While this effort may facilitate process and procedural changes, it fails to concretely repair the relationship between clients and the industry. To achieve this we need to incorporate three components into our product philosophy: simplify, educate and engage (S.E.E.).
Borrowing a page from Apple’s accomplishments in the personal computing industry, the mortgage industry must understand that this need to simplify begins with our efforts towards targeting and retaining clients, starting with the product packaging phase. The fact that the "average" American reads at a 7th or 8th grade level informs us that the way we attract and initially educate our clients needs to change fundamentally. Just as Apple leveraged simplification and minimalism in its design philosophy and the use of graphic user interface & icons; the mortgage industry should move to identify and remove the “noise” around our core offerings by paring down the various “exotic” loan packages available and going back to more basic loan options that are simple, specific and easy to communicate. We need to re-package and re-brand our product to better address and meet the needs of our clients. This includes simplifying the loan application process with shorter documentation that is easier to understand.
The next critical component is to educate the stakeholders at each stage of the process. A 2015 survey by the CFPB shows that nearly half of borrowers are not familiar with the way the mortgage process works and as a result do not “shop” for a loan. Their lack of knowledge makes the process intimidating and they default to relying on their lender, mortgage broker, realtor and friends for mortgage advice.
At the same time, we as lenders currently “woo” in the origination stage of the process. Once our clients have made a borrowing commitment, we find that we are not as familiar with them as we imagined. We also fail to provide the right education, best fit or to clearly articulate the nuances of our product. Consequently, a large percentage of client feedback illustrates the perception that they were not provided with a clear expectation of their product and its behavior over the product lifecycle. It comes as no surprise that our clients do not feel confident in their lending relationship. It reveals a need to understand our potential customers better, beginning with the initial client contact.
Using the Apple philosophy, the focus should not be on pushing a sale but rather on having the product address the consumer needs. Originators should be as knowledgeable as servicers and should be able to clearly articulate the advantages and disadvantages of each product to better anticipate and address client questions or concerns from the early stages of the process. Educating the client continues through the origination and the subsequent servicing of the product. Apple understood this continuing need for product knowledge and responsiveness and answered by providing in-store “Genius Bars” for firsthand immediate assistance with client concerns; a significant factor in their consistent rating of exceptional customer service.
Finally, we must place more emphasis on engaging our clients throughout the loan application process and subsequent servicing. Statistics show that about 77 percent of clients typically only seriously consider and apply with one lender and stop shopping with their first application. Our goal should be to make that first application a meaningful experience – the focus being on “experience.” Also, given the clients’ predominant initial reliance on their lenders for mortgage advice, we have a tremendous opportunity to build a relationship based on trust and loyalty with them. People tend not to remember the facts of a situation but rather how they felt during and as a result of the interaction. We need to be attentive to that experience throughout the product lifecycle. As such, the industry must take a more relational approach to the process, communication and terminology. A starting point would be to soften the terminology used to identify the client and certain client demographics.
For example, “borrower” denotes indebtedness and to an extent subservience, which may be theoretically true, however- the reality would indicate that the interest payments received from these clients are an essential source of revenue to our business and significant to our financial success. Such verbiage does not convey the vital role the customer plays in our success. In like manner, the terms “default” and “delinquent” do not ideally communicate partnership or mutual esteem. Instead, they illustrate the industry’s desensitization and the increasingly widening gap between us and our clients.
As “delinquency” or the number of distressed mortgages continues to fall and the market moves closer to “normal,” the mortgage industry has an opportunity to reinvent itself by selling an experience: the belief in the American Dream and the commitment to helping our clients as active partners in making that dream a reality.
Ironically, as the catalyst that helps people realize their dream: build homes, neighborhoods and communities we have lost the relational aspect of our core product and the experiences associated with it. Like all iconic products that endure, it is time for the industry to self-identify and re-brand ourselves as a partner in the process and we can achieve this by going back to the basics: a product that is simple to communicate and understand, a process that invests in its stakeholders providing education at every step, and engages them in a community that is vested in their success.