Three months into 2016 and the overall outlook for the mortgage industry can be summed up as, at best, meh. Data from the Mortgage Bankers Association’s Weekly Mortgage Applications survey has been turning in mixed results and a continued sense of uncertainty over the direction of U.S. interest rates has made it hard to gauge whether this year will go into the books as a blockbuster or a dud.
The true test will come over the next several months as we turn the corner into prime home-buying season. What we do know right now, however, is that a number of mortgage customer behavioral trends are currently at play in the marketplace that are having a huge impact on the way mortgages are originated. Independent of the market dynamics governing the overall health of the industry this year, the success of many mortgage originators will depend on how well they anticipate many of the seismic changes in consumer demand that are coming to a head.
Based on our analysis of customer satisfaction and behavioral data in the mortgage industry, following are the three main areas we see having the biggest impact on the industry this year.
Technology on the rise
While there have been a number of hurdles to adoption of new technology within the mortgage industry, it appears the floodgates may be starting to open. It is no longer just the firms without a physical network (e.g. Quicken Loans, USAA, etc.) but traditional players, with large physical footprints, such as Wells Fargo who are getting into the act.
Lenders are starting to go beyond just having an online form to fill out that prompts a telephone call, and are starting to provide more self-service capabilities and ‘digital guidance’ to consumers via online videos and other resources. A recent example is USAA’s use of customized videos to provide client specific details on the mortgage process. Although compliance with regulatory changes is likely to continue to demand a substantial portion of the technology budget, it seems clear based on our data that future borrowers are likely to demand upgrades that are focused on making the process easier both in origination and servicing.
Millennials in the market
Much of the increased demand for technology in the marketplace is driven by the next generation of borrowers. In our recently-published, Millennials Insight Report: The Customer Experience Perspective, we find that 92% of millennials use a smartphone to access the Internet vs. 62% of Boomers. Likewise, Millennials spend 52.8 hours per week online vs. 44.6 hours for Boomers, primarily driven by time spent on smartphones.
This clearly illustrates the important role that the mobile digital experience will play for future borrowers. Another key difference that’s changing the face of the mortgage market is that compared to Boomers, Millennials are much more active users of self-services tools. The data seems to show that compared to Boomers, Millennials in general prefer to not talk directly to a service rep when following up post-purchase with a question or problem. Taken in aggregate, these facts can have substantial implications in terms of how companies design their go-forward servicing solutions.
The current market conditions are making the competition for each borrower increasingly fierce. At the same time, lenders are trying to adapt to the changing demands of customers and regulators. The net effect is that traditional points of differentiation such as product and price are becoming less important and lenders have to find other ways to stand out from the crowd.
While companies are trying different tactics including increasingly leveraging technology in the borrowing process or targeting niche segments of the market the one thing that all these strategies have in common is the focus on catering to the customer’s priorities and preferences. Future success in mortgage lending is going to be heavily dependent on finding ways to personalize the experience and make customers feel like more than a number.
The mortgage industry has faced massive change over the past few years, much of which has been driven by regulation. While most expect regulation and oversight to continue to have a substantial role for the foreseeable future, it is also seems clear that an increased focus on technology and delivering a differentiated client experience will be key factor in determining the winners and losers in the industry in the coming years.