Mortgage rates are increasing and demand is beginning to level out. The residential real estate market is shifting, creating uncharted territory for lenders who’ve relied on a housing boom and refinancing to keep them in business.
As existing home owners potentially put the brakes on buying new homes or on refinancing their existing ones, lenders will rely more on first-time buyers to cut down on attrition during the slowdown. These new buyers; however, will heavily consist of maturing Millennials who expect instant access to all of life’s bounties, including capital, at a moment’s notice. Lenders of all sizes are now faced with a confluence of unprecedented workforce and customer satisfaction challenges that threaten how they’ve historically done business.
Millennials continue to drive change
Millennials are the fastest growing segment of homebuyers today, comprising 37% of the housing market. With a baby boom in the ‘80s, this generation is also the largest, fueling a massive influx of new buyers motivated to buy homes by growing rents and still-low interest rates. Now, these younger buyers are driving financial institutions to adapt to their expectations for more streamlined user experiences, accelerating digital transformations with new technology that will move the mortgage industry into a truly digital age.
Remember that Millennials are the generation that watched their parents struggle with high-interest mortgages during the last recession. They see that they have a better financial position in the current market and view homeownership as being paramount to their success. Although mortgage rates are slightly higher than they were six months ago, these buyers face rates that are still far below what they were when their parents first entered the housing market.
Furthermore, escalating rent inflation in the United States is making home ownership especially attractive for these buyers right now. Purchasing a home today is much more affordable than it was previously and, with a larger variety of loan programs available, the appetite for homeownership in this generation of buyers is easier to satisfy. Top lenders will continue to capitalize on that, offering new products and technology that cater to younger buyers.
This is also the generation that popularized on-demand services and the gig economy after all, helping to popularize everything from Uber and drop-shipping to telemedicine over the last 15 years. They seek rapid responses and resolutions, digital access to forms and tracking, and streamlined processes, or more generally speaking: instant gratification with less human intervention.
A 30-something, tech-savvy homebuyer today desires a faster, more no-contact approach to financing with a variety of options available to them at their fingertips rather than mail-in forms, in-person office visits, and constant waiting. The days of 45-60 day processing times in mortgage lending will simply not satisfy, nor survive.
Millennials and adult Gen Zers also work more alternative gig jobs, often to supplement their primary work, than do older Americans. According to Edison Research, 38% of 18-34 year-olds take on these roles, the highest of any age group. Whether these contract positions serve as a primary source of income or function as a side gig, lenders need to use new solutions to account for income verification and scoring creditworthiness, as the traditional model of relying on a paystub from a single job and credit report become obsolete.
The mortgage industry is behind the times
Even with new borrower portals and paperless processing, the mortgage industry is behind the times. Although human decision-making is essential when dealing with the complexity of high-dollar collateral, secondary market maneuvering and data analysis, it will be mortgage lenders investing in automation and robotic processes that autofill, crunch through data, and eliminate keystrokes to deliver lightning-fast responses who are proven most fit to survive the industry’s next evolutionary step.
A look forward
With demand shifting to a new generation of first-time homebuyers, low inventory, and a possible interest rate rollercoaster ahead, expect to also see a more non-traditional mortgage landscape. Condo markets and new construction will swell. Non-QM loan products, and government assistance for first-time home buying will be more prevalent in the coming months and years. And consumer-driven adoption of more technology in mortgage lending will prove to be essential to keep up with the demand, as lenders recognize the innovation tipping-point is upon us.
Moving forward, mortgage lenders will need to do more and do it faster to provide the borrower experience necessary to compete for the next generation of homebuyers. Once technology gains traction for adoption, it moves quickly, and we already see many tech-first banks and fintechs using solutions like automation to serve these customers better. As the market gets more competitive for lenders, being prepared to meet the technological demands of the fastest-growing segment of buyers will mean having the ability to grow alongside them.
Suzanne Ross is the Director of Product, Mortgage at Ocrolus.
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