Residential Magazine

A Second Opinion

Like patients, borrowers do more online research, but they still need expert advice

By Rick Bechtel

When WebMD and sites like it came onto the scene more than two decades ago, it spurred a shift in how people approached their health care. People began researching their symptoms online, reading about various conditions and even bringing pages of printouts to appointments.

The mortgage industry has observed a similar trend. The internet has made it possible for homebuyers to run loan scenarios based on a few self-reported details, to follow interest rates in near real time and to learn about basic mortgage concepts from amateur and accredited sources.

Even after self-diagnosing at home, people still seek appointments with their doctors. Today, research shows that family physicians believe patients visit their offices more frequently because they read about their symptoms online. Patients are conducting their own informational research and then turning to the professionals, who can make an assessment based on their expertise and an understanding of the patient’s medical history. The internet has made knowledgeable physicians more valuable, not less.

In mortgage lending, this same trend has fostered a seemingly more educated borrower. But when it comes to selecting a mortgage that supports an individual’s long-term financial goals, internet intelligence falls short. The expertise of a knowledgeable originator is more valuable, not less.

This year’s TD Bank survey of homeowners confirms this notion. The bank’s annual Mortgage Service Index found that even though online homebuying resources have proliferated, 20% of consumers say they had insufficient resources to educate themselves on the mortgage process.

For the first time in six years, online resources failed to crack the top three sources homebuyers reportedly used for information. This year’s respondents instead turned to Realtors (51%), in-person representatives at their local bank (42%) and family or friends (38%). This signals that more prospective buyers are seeking personalized advice and guidance, which can only come from a human interaction.

Yet the internet has undeniably changed the nature of these interactions and, consequently, the role of the loan officer or mortgage broker. In today’s environment, mortgage originators can demonstrate their value to borrowers by deciphering industry jargon, providing personalized advice and being an integral part of a homebuyer’s team.

Decoding jargon

For many homebuyers, the process of securing a mortgage unfolds in an almost entirely new language — one filled with acronyms and formulas that have become shorthand for industry veterans. TD Bank’s survey underscored the severity of this issue.

Among 1,801 homeowners who purchased a home with a mortgage in the past decade, half could not correctly define LTV (loan-to-value) ratio and another 33% could not define PMI (private mortgage insurance). One-third didn’t know that having a lower DTI (debt-to-income) ratio is more advantageous for securing a mortgage.

Furthermore, one in 10 respondents thought that good credit was unnecessary to secure a preapproved mortgage. And about one-third incurred more than $2,000 in unexpected charges during the homebuying process. Clearly, the gaps in understanding are costing borrowers.

When working with homebuyers, it’s essential for loan officers and mortgage brokers to create shared understanding of the factors that affect rates and loan terms — not only what the concepts mean, but how they relate to a borrower’s specific situation. Buyers, for example, should understand how their student-loan debt impacts their ability to secure a home loan, and they should be able to calculate when PMI will drop from their monthly bill. By demystifying the process, originators can create the clarity needed for borrowers to make informed decisions.

Tailored advice

Even with an understanding of how their rates are calculated, many homebuyers require guidance when evaluating which loan options will provide a manageable monthly payment, after-purchase liquidity and a comfortable long-term debt burden.

In TD Bank’s survey, 15% of respondents said the point at which they needed the most guidance in the homebuying process was identifying a loan option. Providing this level of insight requires understanding a borrower’s entire financial picture. This is especially true when looking at both ends of the wealth spectrum.

On one hand, fewer buyers today are putting down 20%. In the survey, the share of buyers who reported making a downpayment of at least 20% dropped from 48% in 2016 to 36% in 2019. In this environment, it’s essential for originators to help buyers evaluate how much they can and should put down — and to educate them on affordability programs or other ways they can achieve homeownership without a substantial downpayment. Only 58% of survey respondents said they were aware of affordability programs.

Alternatively, serving the high net worth market not only requires knowledge of the nuances of jumbo loans, but also demands the ability to interpret complex tax returns, assess various asset classes and ask borrowers the right questions Only then can mortgage originators provide strategic recommendations that fit within a high net worth buyer’s holistic financial plan.

The need for this expertise and level of counsel is why some banks have implemented certifications for serving wealthy buyers or shepherding Community Reinvestment Act loans, which are aimed to help low- and moderate-income neighborhoods. No matter the borrower, providing personalized, expert advice should be the cornerstone of every originator’s strategy.

Integral relationships

When a buyer thinks of their “homebuying team,” it may include their real estate agent, originator and title company, as well as construction professionals, if they’re pursuing a new home. Each player is a vital part of the process, and when they communicate and collaborate well, it creates a seamless experience for the buyer.

Little does the buyer know how much effort has gone into building and fostering these relation- ships. When developing this invaluable network, mortgage originators must stay attuned to their partners’ values. In the case of Realtors, a 2018 TD Bank survey found they most value responsiveness and efficient communication, followed by guidance while navigating the mortgage process.

Building key relationships and actively working with partners is the key to many originators’ success — and will always differentiate their value.

When it comes to working with homebuilders, many relationships are built on products designed to help clients opting for a newly constructed home. This can include products such as single-close construction loans that can significantly streamline the process for borrowers while their home is built.

Builder relationships are becoming even more critical as the lack of home inventory in some markets has many homebuyers turning to new construction. Building key relationships and actively working with partners is the key to many originators’ success — and will always differentiate their value.

• • •

Although technology cannot replace expert advice and deep relationships, it can enhance certain aspects of the mortgage process. Today, digital mortgage applications can speed up information intake and document gathering, allowing prospective borrowers to work on their applications outside of business hours.

Homebuyers love it — TD Bank’s 2019 survey found that 21% of homeowners said they applied for their mortgage online, compared to only 13% five years earlier. Rather than viewing the digital channel as competition, successful mortgage brokers and loan officers l leverage technology to simplify processes while delivering the personal, human advice that homebuyers still need.


  • Rick Bechtel

    Rick Bechtel is executive vice president and head of U.S. residential lending for TD Bank. He is accountable for all aspects of consumer lending across TD’s mortgage and home equity businesses. This includes strategy, product and profit-and-loss management, as well as leading the bank’s national sales team and secondary-markets groups. He has been immersed in the industry for nearly 30 years and is focused on growing TD’s residential lending business while ensuring alignment to the bank’s risk profile and continuous focus on clients. 

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