Have Consumers Learned From Mortgage Mistakes?
Consumers aren't shopping for mortgage loans comprehensively because lenders are not doing a good job educating them on all of their options, according to a survey put out by Zillow. And lenders aren't going to like one of the implications of Zillow's study of current mortgage shopping habits: more defaulting loans.
Borrowers not fully understanding what their loan entails has been one of the driving factors of defaults in the past couple of years. The more information the consumer has upfront, the higher likelihood they will pick the right product for them and the less likely they will go into default, a company executive added.
A survey for Zillow Mortgage Marketplace conducted by Harris Interactive found that consumers spend on average just five hours researching their home loan, the same finding as a Zillow survey conducted in 2008 had.
However, the consumer spends the same amount of time researching where they want to go on their latest vacation and 60% more time researching the next car they will buy.
The 2008 survey found consumers spent five hours researching vacations and eight hours on cars.
Another finding detailed in the Zillow is that those consumers who got a home loan in the past five-year time period sought an average of three quotes before making their decision.
This was down from four quotes in the 2008 survey.
Zillow chief economist Stan Humphries pointed out that the mortgage crisis should have driven home the fact "that understanding one's home loan is critically important, but mortgages continue to be something that most people don't want to spend time thinking about."
He expressed surprise that in two years, the survey results regarding the time spent researching home loan pricing was essentially unchanged.
"In an area like mortgages, where the lender has so much more information than the typical borrower, getting multiple offers from lenders and being able to compare them relative to one another is critical to leveling the playing field," he said.
But the lack of shopping might not all be entirely the fault of the consumer. The survey found that 58% wanted to compare loan terms on "an apples-to-apples basis," while 52% wanted it easier to shop for rates and 56% wanted fees standardized and easier to understand. Furthermore half of the respondents said they would like to get more than one quote without sharing personal information.
Amy Bohutinsky, Zillow's vice president of communications, said the company decided to repeat the survey of two years ago in the aftermath of what has happened since then with consumers finding themselves with mortgages they did not understand, which was being cited as a main factor in the rise in foreclosures.
Consumers still aren't spending enough time finding out what is the right lender and product for them, the latest survey found.
Lenders need to be aware of the reasons behind the consumer behavior, she said, and thus be better prepared to give consumers an explanation of what is the right product or products for their individual situation. They should give the consumer multiple options to look and shop amongst.
For consumers, they are getting a loan they are able to afford and be happy with.
Shopping for a mortgage is not something people do frequently, nor is it fun, Bohutinsky said, with a lot of confusing terms being put out by originators.
"The more clear lenders can be in explaining to consumers what goes into the rates and the terms and the fees and breaking it out in a way they can compare is really important," she said.
While consumer behavior hasn't changed yet in shopping for mortgages, Bohutinsky believes that they will become more active in the future as they get more tools to use.
This will give the consumers the standardized way they seek to entertain mortgage offers. The easier the originator can make the comparison process, the happier the consumer will be, and furthermore, she said, they will be more apt to refer the lender to another consumer.
The survey also found that 15% of the respondents said they wanted it to be able to choose a lender based on reviewing others' experiences and how the lender has been rated.
This, Bohutinsky said, is a sign of the Internet age. Consumers want to see lender reviews.
"The Internet is making ratings of professionals pretty ubiquitous. It behooves the lender to spend the time and educate their clients from the beginning, because it can come back and benefit them in the end," she said.
"On the flip side, negative reviews can live on the Internet for all to see as well."