MReport July 2018

TheMReport — News and strategies for the evolving mortgage marketplace.

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44 | TH E M R EP O RT SERVICING THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T Finding the Right Balance Today's servicing technology is helping to align lenders and servicers with borrower needs. By Craig Martin T oday's mortgage industry is at risk of becoming misaligned with what consumers want. Cus - tomer expectations are rising—not due to competition within the industry, but because disruptors like Amazon are changing the dy - namic of what customers expect from service providers. Lenders and servicers must start looking beyond their direct competitors to ensure they don't miss out on critical opportunities. This trend is not limited to the mortgage industry. In fact, it's something we're seeing across vari - ous customer satisfaction studies in sectors as diverse as automotive, property and casualty insurance, telecom, and financial services. Businesses of every type struggle to find the right balance between high tech and high touch customer interactions. What is unique to the mortgage industry, however, is just how late the broader industry is to the tech game. You can chalk it up to a combination of strict regulation, years of strong refi demand, and entrenched business models, but, when compared to the rest of the financial services landscape, the mortgage and home lending business as a whole has been slow on new tech development. Rising consumer demand for self-service technology and a more com - petitive overall marketplace are conspiring to buck that trend, but, based on our data, the industry still has a long way to go. Our recent Primary Mortgage Origination (PMO) and Home Equity Line of Credit (HELOC) studies provide an excellent case study for the potential risk to the industry of not getting the tech formula right. The PMO study found significant shifts in borrowers going online to complete their applications, with first-time buyers' use of digital channels rising from 22 percent in 2016 to 37 percent in 2017. Experienced borrowers' digital utilization grew from 30 percent to 44 percent over the same period. Likewise, our HELOC study found that digital is becoming a much more significant fac - tor among younger borrowers, with 58 percent of millennials gathering information online via desktop computers and 48 percent gathering information online via smartphone or tablet. It is also worth noting that millennials were the most active single generation of homebuyers in 2017, according to the National Association of Realtors. The risk in this trend for lenders is this: as more customers shop for loans online, the potential for competition increases, and when that happens, the digital experience becomes an increasingly critical part of the customer journey. In our HELOC study, for example, 58 percent of study respondents indicated that they considered at least one other lender during the shop - ping process. For the combined category of Gen Y/Gen Z custom- ers, which includes all mortgage customers born after 1977, that number jumps up to 78 percent, with nearly half considering two or more lenders. The more borrowers explore their options, the higher the risk that the value of their existing relationship reduces. A significant 47 percent of HELOC custom - ers reported the main reason for choosing their lender was a current relationship, but this falls to 28 percent among Gen Y/Gen Z, which appears to have a clear connection to the use of digital shopping channels. Another po - tential risk is customers turning to alternative lending solutions like personal loans that seek to fill similar needs and are geared to customers shopping online. Personal interaction will play a key role for most borrowers for the foreseeable future. That said, with a growing number of players offering online and mobile capabilities, customers are increas - ingly open to digital shopping for mortgages. They are likely to expect a minimum level of skills in the not-too-distant future in all phases of the borrowing and servicing experience. As this transition continues to unfold, mortgage lenders and servicers must differentiate their digital offerings and create digital customer experiences that are in line with increasing customer standards. Lenders need to understand the mortgage customer experi - ence is a journey that starts with initial consideration and evalua- tion and extends through usage. Increasingly, each step of that process is occurring through digi- tal channels, which are areas that the mortgage industry has been notoriously slow to develop and refine. Now is the time to invest in getting that tech formula right for consumers. Craig Martin is Senior Director, Wealth & Lending at J.D. Power. He is responsible for the company's research studies in the mortgage sector, as well as proprietary tracking, consulting and performance improvement initiatives. Before joining J.D. Power in 2012, Martin was VP, Consumer Deposit Products at BBVA Compass where he was responsible for ongoing competitive evaluations of product sets, new product development, and development of tools to aid in product sales, including product packages.

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