BLOG VIEW: The biggest challenge currently facing the mortgage industry is its ability to innovate. With most forecasts calling for flat to marginal growth over the next year, it is imperative that mortgage lenders identify the various buying constituents – not just millennials – and deliver mortgage products in a modern and innovative way that appeals to each market segment.
At 83.1 million strong, millennials make up the largest generation of potential home buyers. While this is good news for the mortgage industry, millennials still face significant hurdles that may prevent them from purchasing homes within the next few years. Mainly as a result of record-high student loan debt, a large percentage of millennials are unable to save for a down payment. As of the end of the second quarter, 11.5% of the $1.19 trillion-worth of education loans was seriously delinquent (90 days or more past due). While this is only one-third of all seriously past-due debt payments, only about half that amount is actually in repayment. Bearing this in mind, mortgage lenders must look to other market segments, such as Baby Boomers and Generation X, in order to grow.
Baby Boomers Look To Downsize, Retire
Baby Boomers, who represent about 23% of the population, are a profitable market segment for mortgage lenders. According to a recent Merrill Lynch survey of 6,000 adults, on average, home equity among homeowners age 65 and older is more than $200,000. While the net worth of a typical Baby Boomer family is less than half of what it would be if the financial crises had never happened, many are still looking to free up their equity and move to smaller homes in less-expensive neighborhoods to pay for travel, medical costs and other expenses they may need in their later years.
This market segment is also looking to retire. In fact, the resort market has seen an increase of 57.4% over the last year. Lawrence Yun, chief economist for the National Association of Realtors, attributes much of this growth to ‘Baby Boomers moving closer to retirement and buying second homes to convert into their primary home.’
Additionally, states like Florida are seeing an uptick in home buying and construction, as many Baby Boomers take advantage of current low prices and interest rates, rather than wait until later. Either out of necessity or by choice, Baby Boomers are expected to spend $1.9 trillion or more on home purchases over the next five years, making them a viable market for mortgage lenders.
Gen X Emerges As Most Stable Market Segment
Although Generation X (ages 35-50) has been overshadowed by the millennial and Baby Boomer generations, it is also a market segment to take seriously. This group may have suffered the most during the financial crisis, accounting for more than one out of every 10 foreclosures in 2008, but they have serious purchase power today and are quickly emerging as the most stable generation. In fact, a recent study from NAR found that Gen X is now the largest home selling demographic, at 27%.
Gen X is also a promising home-buying market segment, according to NAR. The average buyer is 41 years old and has a medium income of just under $105,000. They're also looking for larger homes to accommodate growing families priced at $250,000. Overall, Gen X should not be ignored. This group is continuing to emerge from the financial crisis as an incredibly stable and powerful cohort.
Meeting The Expectations Of All Generations
Simply put, the mortgage industry must do better to attract all buyer segments in order to increase growth. Mortgage lenders must implement new, innovative technologies to revolutionize the lending process. This includes solutions that can speed underwriting and expedite document collection. This, in turn, strengthens customer service.
Borrowers also expect to be able to interact with their lenders when, where and how they want. In today's tech-savvy, digital world, many prefer online communication; therefore, lenders should offer an online portal to provide borrowers – especially millennials and Gen Xers – access to loan documents, as well as the ability to view real-time progress. At the same time, traditional communication methods should not be ignored. Many Baby Boomers, for instance, still prefer to use the telephone when communicating with their mortgage lender.
Lenders must also enable borrowers to electronically sign important loan document. By being able to electronically sign form 4506-T as well as the entire disclosure package, lenders can significantly speed up the process and streamline operations, resulting in high customer satisfaction rates.
Although 2016 could be another relatively flat year for growth, mortgage lenders must look beyond millennials if they are to pick up more market share. Baby Boomers and Gen X are critical segments making up two-thirds of the home-buying market, and lenders must recognize their unique expectations and needs. For this reason, lenders must invest in technology and tailor their customer service for the types of borrowers they wish to attract. Although it can be challenging, given that what works for one group may not work for another, lenders simply cannot afford to miss out on these opportunities.Â
Jeff McGuiness is chief sales officer for Embrace Home Loans, an approved lender for the Federal Housing Administration and Veterans Affairs and an approved seller/servicer for Fannie Mae, Freddie Mac and Ginnie Mae.
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