What is the mortgage process?

The millennial generation, represents a huge opportunity for the mortgage industry. With the oldest members of this massive demographic group reaching peak home-buying age (33 years old), many millennials are deciding when and where they want to settle down.

Joe Tyrrell, Ellie Mae's executive vice president of corporate strategy, recently said the mortgage industry is poised for a monumental shift as more millennial home buyers begin to enter the market because there are roughly 87 million would-be home buyers in the millennial generation, and 91 percent of them say they intend to own a home one day. Lenders must be prepared to meet their needs.

Perhaps more than any other generation in history, millennials demand options. They want to be empowered to make informed decisions using digital (and mobile) communications. This makes them different from the previous generations of home buyers that the mortgage industry is accustomed to serving.

To develop a modern lending experience specially tailored to millennial borrowers, lenders have to know what this age group expects from the mortgage process. Here are eight areas to focus on when working with millennials:

1. Marketing

According to the National Association of Realtors' Home Buyer and Seller Generational Trends report, 94 percent of buyers 35 years old and younger used a website to begin their home search. To reach millennial customers, you need to have a strong online presence. The majority of millennials will want to research you online before contacting you.

2. Fast, easy-to-use communications

It's no surprise the generation that grew up texting and emailing wants mortgage communications to be fast, efficient, and easy to use. While millennials still prefer to talk to a real estate agent (87 percent did so at some point, according to the NAR), calling to schedule an in-person meeting isn't their cup of tea. Millennials want to be able to send a text or email whenever they have a question, not wait for an agent or a loan officer to listen to a voicemail and call them back.

3. Education

Millennials exhaustively research subjects before committing. They want access to as much information as possible, preferably through a digital or mobile medium, so they can be as prepared as possible. When loan officers define mortgage jargon, as well as share and compare purchase and loan options with millennial customers, it's a sign that lenders take the education aspect of the mortgage process seriously.

4. Digital/mobile tools

Smartphone apps are increasingly popular in the home search process, with the NAR reporting that more than two-thirds of millennial and Generation X home buyers used a mobile or tablet website or app in their home search. Similarly, the convenience of a mobile app in the mortgage process is key to achieving success with millennial borrowers. Apps like United Guaranty's MI NOW℠ increase loan officers' productivity and provide them with the resources to inform millennials with an on-the-spot MI quote.

5. Transparency and honesty

Whether it's your website, mobile app, advertisements, or discussions directly with borrowers, millennials expect the mortgage process to be honest and transparent. A positive customer experience depends on lenders being up front with information from the initial show of interest to the contract signing.

6. Location of housing

Millennials are looking for houses within commuting distances of the communities where they are finding jobs. Unfortunately with home-building remaining at historically low levels, these faster growing job-creating communities are, with a few exceptions, not where the majority of the nation's existing housing stock is located. So the demand for housing will be very localized to these communities for years to come. Longer-term, expect fast growing employers to increasingly look to add new facilities in areas where there is access to high-quality job candidates and a large housing stock—such as in cities with large technical universities in the Midwest and East. Mortgage originators should ask themselves how they can work within these communities to make home purchases easier.

7. Down payment

Without a prior home to sell, a 401(k) to borrow from, or stocks or bonds to sell, millennial borrowers may rely more on savings and gifts from relatives to make the down payment on their first home than generations who are older. This indicates to a need to carefully design mortgage programs with low down payments for borrowers who have solid record using credit.

8. Credit

Millennial borrowers are more likely to have larger student debt balances than their predecessors, and that type of debt causes many borrowers to delay home purchases by as much as three to five years. As a group, millennials have offset their higher student debt with lower credit card debt, which often makes for "thinner" credit files, another consideration when helping millennials obtain financing.

Despite all the differences in the way millennials search for homes and the lifestyle differences that may alter the timing of their home purchases, they are just as determined to own homes as prior generations. As they push into their mid-30s, their financial resources will grow and they will begin new families, and it is evident the demand for housing is going to grow even faster than purely demographic data would suggest. One thing is certain: this generation has some catching up to do and it will be a major driver of home sales, home building, and the U.S. economy for years to come.

As Senior Vice President, Product Development, Dan Walker manages product innovation that includes both core mortgage insurance-oriented products and broader product and service offerings. He has also served as Chief Operating Officer, International, with oversight of United Guaranty's overseas operations. Previously, he managed special projects at United Guaranty, including the multi-year "UG Roadmap" initiative to upgrade key business processes—loan applications, underwriting, and claims evaluation—using new technologies. Walker also served on the Destiny project team that helped guide the company through the mortgage crisis to become an innovative industry leader. Since joining United Guaranty in 1987, Walker has managed a number of key technical areas, including Actuarial, Risk Management, and Structured Products. He assisted in the development of captive reinsurance and structured mortgage guaranty insurance programs. He also led the development of United Guaranty's actuarial databases and pricing models and its first mortgage scoring and econometric risk indices. Walker has served on various mortgage insurance industry research committees since 1978. He holds a BA in economics from Virginia Polytechnic Institute and has appeared as guest author in a number of industry publications.

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