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Lenders need to engage millennials on their terms, Ellie Mae executive says

Ellie Mae recently rolled out a new data tracker that specifically gathers information on the homebuying habits of millennial-generation buyers. Joe Tyrrell, executive vice president of corporate strategy for Ellie Mae, spoke with Scotsman Guide News about what the company has found out so far and why lenders should care.

Why did Ellie Mae develop a tool that specifically gathers information on millennials?

Joe TyrrellWhen we talked to our lenders about their technology needs, more and more what was coming up was ways to engage the emerging millennial cohort, the biggest generation in the history of the country. Our data gives a strong indication that millennials are far more likely to choose a [Federal Housing Administration, or FHA] product versus a conventional product. That helps the lender not only understand how they are going to market to the specific geographic area, but what products they may focus on. Then you go another level down, and we find in certain [metros] gender makes a big difference. There are certain areas where female primary borrowers represent a greater percentage than male primary borrowers. That  gives a lender greater insight into how they can think about marketing their specific products and services to this specific demographic, which, up to this point, they have not had a lot of experience with.

Why are lenders so interested in this group?

Any time that the market shifts from a refinance to a purchase-centric market, it means that you really need to understand the new homebuyers coming into the space.  Lenders have done a really good job of understanding the typical homebuyer. All of a sudden, the millennials come into it. They grew up on the Internet. Their expectation is that they are going to be able to drive a lot of any process themselves. Two, they are going to be able to do most of it through a mobile device. That is a very different engagement model than what most lenders have. How are we poised to really meet them and meet their expectations? Traditional processes may not meet their expectations. 

What sort of information can you gather with the tracker?

Some of it is just validating assumptions that exist in the market. For example, we know that many millennials want to live in urban areas, where there are major cities. Millennials are really starting to represent a greater percentage of the homebuyers more in the Midwest and for two reasons. One is because there is a greater inventory of affordable housing and two, just because of the overall homeownership costs in those areas are far less than in urban areas and larger [metros] on the coasts. Places like Jefferson City, Missouri; Pottsville, Pennsylvania; Decatur, Illinois; Dickinson, North Dakota — these are areas that many lenders may not think to start to market in, but they are all areas where over 50 percent of the closed loans were represented by the millennial population. So it gives lenders some insight into where they should dig a little bit deeper and determine if they want to change their marketing messages. In our origination insight report, which looks across every age band, we see that 23 percent of the loans closed were FHA loans. However, in the millennial tracker, that number jumps up to almost 40 percent. So, if I am a lender, and I am going to be marketing in specific areas, I may want to focus on highlighting the areas that focus on what an FHA loan can do for a first-time homebuyer.

Is there anything in the data that has surprised you?

As you dig into it, there are some things that are very interesting. There are certain [metros] where the primary borrower is female, and those percentages are pretty significant in certain areas. When the male is the primary borrower, it is predominantly driven by an event, meaning a family formation is taking place, and it falls into the more traditional application process. When a female is the primary borrower, in some [metros] we are seeing up to 60 percent of those female borrowers were single. It is very interesting because it starts to show that there is this emerging micro-demographic of single, millennial women who are ready to purchase homes if they can find an affordable inventory of homes to purchase. That really starts to change what you think about marketing.

What are some issues holding back millennials from entering the market?

There are probably two things that we see, and this is informed by many reports and studies. One is that millennials are waiting until that seminal event in their life happens, the family formation. It is not even marriage. It is more having children. Millennials are viewing homeownership as a commitment to a geographic area. That is one aspect of it. The second I would say is just more education. We get a question, "Do you think it is more difficult for millennials to purchase homes today than their parents?" When you look at it from a factual basis, 20 years ago in 1996, the average interest rate for a 30-year fixed mortgage was about 8 percent. Today it is less than 4 percent. Today there are state grants. There are downpayment-assistance programs. There are products offered through main street banks, and Fannie Mae and Freddie Mac, that can go up to 97 percent of loan to value. So, in my mind, there are more opportunities today for millennials to purchase homes than for their parents, but I think there is a lack of education in helping millennials to understand the value of owning a home and [their ability to] access credit.


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