Residential Mortgage Lending for Millennials
by Shamit Vohra
The residential mortgage industry is facing tough business conditions. Compliance requirements and operational costs have gone up considerably. High interest rates and record property prices have resulted in dampened demand for fresh originations and refi.
In these tough market conditions, it is the millennial age group (19-37 years) that has been driving demand for mortgage housing loans. As per the research by Urban Institute, millennials account for the largest share of mortgage loans by dollar volume and comprise of a In fact, in regions such as Buffalo, Pittsburgh, Cincinnati, Milwaukee, Columbus, and St. Louis, millennials have been making up for more than 50 percent of the mortgages.
With millennials constituting an important customer segment, progressive lenders have adapted their lending models to cater to their needs and preferences. Technology adoption has been one of the pivotal moves made by lenders to attract and retain the millennial loan seekers.
Here’s how technology is effectively disrupting the mortgage lending segment, especially with reference to millennials.
The millennials are way more tech savvy than previous generations. They prefer greater control and increased transparency in the process. Technology has made access to loan related information very simplified and transparent. Millennial borrowers can enjoy the convenience of accessing this information, right from their mobile device and quickly run comparisons to their satisfaction.
Technology has simplified the loan research and application procedure. The two and fro communication that is needed at different stages of processing a mortgage application can be offered through the mobile app, making it much simpler.
Technology facilitates sharing and uploading of loan related documents online, offering round the clock convenience and saving travel and shipping costs. Mortgage apps of certain lenders are allowing borrowers to log into their bank account from within the app to retrieve the required bank statements, and submit them directly. This particularly helpful in an age, where over 67 percent millennials are relying primarily on their smartphones for all kinds of activities including banking and finance.
Improving quality and loan processing speed
Technology has helped improve the processing speed and reduce costly errors in the back-end workflow.
With intelligent OCR tools, the time required for redundant manual data entry has been eliminated. The lead-time needed to disburse a loan has also come down. In fact, with loan files being available digitally, indexed and stacked correctly, servicers are now able to review them much more efficiently, and onboard large loan portfolios at great speed.
These efficiency benefits are only the tip of the iceberg. With Artificial Intelligence (AI) and Machine Learning (ML) coming into mainstream, the capabilities are only improving on a continuous base. It is expected that in less than 5 years, leveraging the endless possibilities of AI could make one-day loan approvals the norm, as compared to the current benchmark of three weeks.
Despite the clear benefits, not all lenders have been able to make best use of technology. There are certain barriers to the adoption of the latest technology in terms of high initial upfront costs and risks of opting for a new technology. However, with innovative pricing models like “Zero-Cost Technology” it is possible for the lenders to start using technology and capture the growing millennial business.