To capitalize on the millennial market segment — classified as individuals between the ages of 15 and 33 years old — lenders and servicers must engage the group in ways that are drastically different from prior generations, starting with education and technology.
Millennials were raised with an abundance of advanced technologies right at their fingertips, which they have come to expect in every aspect of their everyday lives, including applying for a mortgage. The fact that smartphones and tablets have overtaken desktop computers as the preferred shopping and buying method presents a challenge for lenders.
As of this year, millennials make up the largest generation in the United States with a population of just over 83 million. Representing more than one-quarter of the nation’s population, according to the U.S. Census Bureau, the age span of this demographic group is too broad for the mortgage industry to make sweeping generalizations.
For the most part, millennials are pragmatic, have changing value structures, embrace disruptive technologies and require transparency when making financial decisions. This significant and growing target market for today’s lenders requires changes in current marketing, market segmentation strategies and outreach approaches to reach these potential borrowers.
Leveraging Baby Boomer homeowners to reach their millennial children is a viable approach to draw them into the first-time homeowner market. For instance, mortgage lenders and servicers should educate Baby Boomers on new underwriting guidelines regarding "gifts" from parents to contribute to down payments through servicing statements and marketing outreach.
Baby Boomers should also be educated on how to help their adult millennial children apply and secure financing for homes in foreclosure and default — homes that are most likely valued at pricing that would attract the millennial and fit their budget.
Lenders and servicers should implement technology that incorporates education right into the mortgage research, application and closing process. For example, a consumer-facing loan application with engaging videos on why, how and where to complete the application and submit the appropriate documentation.
Automatically submitting a picture of a paystub or other types of documents from a smart device should also be available and finally, communicating with millennials in their preferred communication style (which is most likely not email).
Millennials have grown to expect creativity, individualized service and 24/7 service, so consumer-facing portals should be intuitive and offer easy access to their mortgage information whenever, wherever.
They also, until very recently, were largely underemployed and buried under mountains of accumulated student loan debt. They lived at home or rented with one or more people.
The tide for millennials does finally seem to be changing, and the industry is beginning to see a positive shift of more of them purchasing homes. In fact, the 2015 National Association of Realtors Home Buyer and Seller Generational Trends Study reported that for the second consecutive year, millennials represented the largest group of recent buyers, accounting for 32% of all buyers in 2014.
A significant portion of the millennial population is now in their mid-to-late 20s — the average age at which their group gets married and, therefore, buys a home. Additionally, rent has skyrocketed and it is substantially more expensive to rent than to own.
The economy is also stabilizing, providing them with more job opportunities and higher salaries. These young adults now represent the largest potential for first-time homebuyers in a renewed mortgage market, and, as a result, the mortgage industry should expect homeownership to lift from the 21-year low.
Millennials grew up during the height of the recession and were thrown into a scarce job market. The economy is finally bouncing back and with that, their confidence in the stability of the economy is increasing and their willingness and ability to purchase a home has improved.
Dawn Sherbeyn is director of origination and settlement technology at ISGN.