In the wake of upcoming TILA/RESPA disclosure integrations and the growing mound of regulatory requirements, many in the industry seem to be focused on staying afloat with compliance rather than capturing new market share. Mortgage disclosures and many other areas of regulatory compliance have become liability checkboxes rather than actually protecting the consumer. I strongly believe that if disclosures and cost benefit analyses (CBA) are presented in a more digestible format, compliance would not only be more effective in protecting the consumer, but it would also improve lead pull-through, customer loyalty and ultimately, production.
The first-time homebuyer market is growing rapidly, the vast majority of whom are multicultural and millennials. For any first-time homebuyer, the process can be very stressful; but for the emerging market segments, there are added complications including a lack of trust in the industry.
Millennials are entering the marketplace either during or immediately after the crisis, and are generally much more skeptical of professionals in the industry than previous generations. According to Pew Research, only 19% of millennials state people can be trusted, compared to 31% of the previous generation.
First-time homebuyers are (typically) making the biggest financial purchase of their lives with very little knowledge of what’s going on in the process. Consumers are bombarded with financial jargon and seemingly endless disclosures that can make a fairly intelligent person feel like an idiot. And while millennials are information addicts on the Internet, the mortgage process seems like a black hole for even the most tech-savvy. However, they’re not likely to turn to their local bankers, who have been branded as blood-sucking salesmen in the financial collapse. Needless to say, today’s first time homebuyers are a little skeptical of the whole mortgage experience.
As a millennial homeowner, I felt confident that I made a good purchase in buying my home, but I did not rely on my Loan Officer to give me that confidence. In my eyes, he was nothing more than an originator, a process to an outcome. Knowing he is paid on commission, I certainly would not expect him to provide me with unbiased information about my mortgage decision. In order to thrive with this generation, I believe mortgage companies must instill confidence in the buyer through unbiased education that empowers the consumer with knowledge about the process and their loan.
I believe misunderstanding and confusion prevent many qualified buyers from getting mortgages, and the current disclosure process perpetuates this problem. The first time homebuyer needs more information to feel confident in their decision than is typically provided, and they need that information in a format that can be easily digested.
The Consumer Financial Protection Bureau has encouraged disclosures to be provided in simplified language, but there has been little research performed on the impact that the quantity of disclosures has on the consumer’s ability to digest the information. Carl Schneider, law professor at the University of Chicago, calls it an “accumulation problem,” stating that “disclosures are often mandated not so much because they are expected to work as because they are the only practical response to pressure to act.”
In addition, I believe the mandated “language” of the consumer needs to be brought into the digital age. We would think it was absurd if we were providing customers with disclosures in Old English. As they sign the most important financial documents of their lives, they have to sort through archaic language that is difficult to understand for even the highly educated and financially literate consumer.
In order to effectively improve consumer protection and meet market demands for information, I believe disclosures need to be brought into the twenty-first century with technology and information that engages the customer in a standardized format. As an industry, we have the ability to do this as evidenced by technology such as “Mortgage Coach”, used by some companies to provide CBA’s and disclosures. This needs to become an industry standard and an integral part of our operation costs. At the very least, companies that want to reach the emerging market of homebuyers must choose a method of issuing disclosures that improves the consumer’s ability to digest that information. Regulatory agencies need to begin to innovate when it comes to regulatory response to consumer protection.
Integrated disclosures are a huge opportunity for the industry to meet the demands of the customer and improve consumer protection, but if they continue as mindless checkboxes, we are not only hurting the consumer, but we are hurting business. When the industry learns how to empower customers through information and disclosures, leading them through the process in a digital and simplified format, we will develop a stronger and safer housing market.
Disclosure of Material Connection: I consult for Mortgage Coach and may be compensated for the noted endorsement. Regardless, I only recommend products or services I believe will provide value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255.5.