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Bank of the Future

Home Lending to Generation D: What’s so Different?

 
August 31, 2017

The digital generation, popularly known as Gen D, is made up of tech-savvy digital cohorts that have influenced the way many businesses function. Enterprises across sectors have been remodeling their business strategy to suit them and the mortgage bankingsector should be no different.

The older millennials are now readying to buy their first homes, thus making a substantial pool of potential homebuyers. Presently, millennials account for 34% of home buyers, and 66 % of these are first time home buyers. According to the US Chamber of Congress, there are over 80 million millennials in the US, which is a huge target market for lenders. However, lenders must understand this segment of customers that is technologically inclined, socially connected, and eager to achieve its financial goals, without making hasty decisions.

So, what must lenders do to attract them? Innovate to capture mindshare!

First, Make Credit Available

At the outset, thin credit files or limited or a complete absence of credit history makes it difficult for millennials to establish their creditworthiness. Thus, getting loans from traditional banks poses challenges.

However, lenders can evaluate risk by analyzing data from alternative sources such as digital platforms (used for paying utility bills, rent, and tuition), mobile wallets, social networks, spend and save patterns revealed by checking accounts, and online shopping history. Subprime credit bureau reports can help too. New credit scoring models and data mining algorithms can be used on alternative data to gauge lending risk.

Experian has recently partnered with Finicity, a financial data aggregator, to help lenders get a real time view of the borrowers bank accounts data to verify their income and assets and transaction data to enable them establish borrowers credit capacity. To measure the creditworthiness of such home buyers, lenders might have to look beyond their use of credit into their financial life and future income generation capacity too, perhaps!

Again, burdened with higher levels of education debt, Gen D finds it difficult to pay mortgage down payments hindering their home buying goal. Introducing products with low down payments or lower monthly installments can address this need. Down payment assistance programs or budgeting apps would be a great next step.

Go Digital

As a natural extension of their behavior, Gen D will seek out a digital experience for their home buying journey too. To attract Gen D, lenders need to make mortgages more accessible by digitizing the origination process. Digital technologies such as electronic signatures and mobile capabilities for document upload, and round-the-clock access is a must-have.

The online mortgage application process can be further simplified through automatic data capture or pre-population of the borrowers data at the application stage. Lenders can collaborate with third-party data aggregators or providers to access customers income-and-assets data. This means that lenders receive information that is verified at source. The result? No paper sorting and document chasing ordeal, making lending a swift and paperless process for both parties.

Educate and Engage

An educated lot with a cautious mind, millennials prefer to take informed decisions. Thus, they need to be informed about the benefits of home ownership and the mortgage process well in advance. 93% of millennials use the internet and 88% prefer mobile devices to perform property searches. Lenders should therefore leverage digital tools and online platforms to educate and engage this segment. Lender portals with utility tools, tips and educational videos, infographics, and lists work best. Active engagement through continuous, proactive, and transparent communication is critical to the home buying process.

A sizable section of this demographic may already have been lost to marketplace lenders like SoFi and Loan Depot that have captured millennial clients by portraying themselves as agile, mobile-first, and transparent lenders. SoFi now originates nearly ; slowly yet steadily eating into the mortgage market share of traditional banks.

Thus, it is crucial for traditional lenders to digitally reinvent themselves to cater to this new generation. Some banks like Wells Fargo, JP Morgan Chase are positioning themselves to win over and capitalize on the millennial market but, they have some catching up to do. What do you say?

Lakshmi Priya Das is a Functional Consultant with the Banking and Financial Services (BFS) business unit at Tata Consultancy Services (TCS). A subject matter expert on mortgage business, she worked with a leading mortgage servicing organization before joining TCS. With over four years of experience in TCS, Lakshmi has built significant expertise in the US retail mortgage market and has worked on strategic consulting assignments for TCS leading clients.