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   ARTICLE   |   From Scotsman Guide Residential Edition   |   November 2017

Catering to the New Market

Shifting demographics call for a shift in lending practices

With the current state of the housing market, loan officers are likely seeing a surge in potential homebuyers coming through their doors. Homes in the United States are selling at a faster pace than ever before, fueled by a shortage of inventory and unwavering demand.

To top it all off, home prices are skyrocketing. According to the National Association of Realtors, the median existing-home sales price in the U.S. hit an all-time high of $263,800 this past June. Homebuyers require the expertise and guidance of originators more than ever to help overcome these challenges to purchase their dream homes.

The makeup of potential homebuyers is changing, however, because millennials are finally showing an interest in entering the housing market. This large consumer segment is expected to form more than 20 million new households between 2015 and 2025, according to Harvard University’s Joint Center for Housing Studies.

This shift in demographics will require changes to standard mortgage industry practices. Catering to millennials cannot be done with a one-size-fits-all approach created for consumers born before the internet age. To serve millennial borrowers, originators must understand their unique needs.

Millennial attitudes

Millennial purchase power has been shaking up various industries for years with everything from music to taxis now being ordered online. The mortgage industry is just beginning to feel the effects of this shift and mortgage companies need to keep up to stay relevant.

The first question loan originators must ask is: Why have millennials delayed buying homes until recently? According to U.S. census data, homeownership among adults under 35 years old was 35.3 percent in the second quarter of 2017. In 1980, this number was at 43.8 percent.

Many analysts have suggested a few reasons for this drop. First, older millennials entered the workforce during the Great Recession, which impacted their financial stability. In addition, although millennials are one of the best-educated generations in the history of the United States, this often comes at the price of high student loan debt from soaring college tuition bills.

Millennials also don’t appear to be as focused on building their credit rating as were prior generations. Some studies have stated that as many as two-thirds of millennials don’t even have a credit card, while other reports dispute this assertion, claiming that millennials may actually be overusing credit cards.

In either case, the credit scores for many millennials are not in tip-top shape. In fact, Experian reported that the average VantageScore credit score for millennials in 2015 was only 625. This number increased to just 634 in 2016.

They may have gotten off to a rough start financially, but more and more millennials are finding their financial bearings and attempting to enter the housing market. Unfortunately, the mortgage industry still has room for improvement when adjusting to serving a market segment characterized by high debt and low credit scores.

Getting the job done

So, how can loan originators cater to and properly serve this growing segment of millennial homebuyers? First off, mortgage companies must be quick and good.

Millennials are accustomed to using services that provide near-instantaneous results — such as ride-hailing smartphone apps and online ordering that promises speedy delivery — and they will expect other businesses to follow suit. As a result, this segment of homebuyers may care less about getting financial-planning advice from experts than previous generations, favoring instead a more “get it done and move on” process.

Like any first-time homebuyers, however, it is not uncommon for millennials to be unaware of the various mortgage options available to them. Originators, therefore, should take the time to educate their millennial clients about the different products they qualify for and help them make the best mortgage decision for their situation.

Outside of understanding their options, however, millennial homebuyers will tend to be more interested in just making the loan happen and will value originators and mortgage companies that can help them get it done as efficiently as possible.

Another point to consider is that most millennials are digital natives and have grown up with technology empowering their lives. With the speed and convenience of technology constantly impacting millennials in their day-to-day lives, originators cannot be afraid to embrace it as well.

Technology integration can take a variety of forms, such as giving customers the convenience of submitting documents online and the ability to check on their loan’s progress and find other information through a virtual dashboard. Whether this portal is on the web or through a mobile application, millennials have grown accustomed to having a one-stop hub where they can take care of business.

Technology cannot fix low credit ratings or high debt-to-income ratios, however. To help make millennial homeownership dreams a reality, originators and underwriters should not be afraid to get a little creative. It’s important to look at the whole applicant and see where opportunities lie.

Consider more holistically evaluating secondary jobs on top of primary jobs, for example, for borrowers that pull multiple shifts. All borrowers appreciate originators who show they are willing to personalize their services and truly understand the issues facing applicants. Millennials are no different than any other generation in this regard.

•  •  •

Whatever tactics you decide to use when catering to millennial homebuyers, it is still vitally important to be trustworthy, clear and responsive. There is no replacement for providing sound, superior service with expertise that your clients know they can depend on. When you take the time to understand the unique needs of a consumer segment, your services will be comprehensive and reliable.


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