New paradigm – keep the car, boat, and HDTV, but default on the “upside down” mortgage. It appears from all indicators, that even prime mortgage borrowers could be adopting a new and permanent mindset that is unprecedented in the lending industry. Consumers in droves are making choices on their lending payments treating property deals as no more important than a payment on a car, couch, or a gym membership.
In a very insightful article published in the Financial Times of London on January 31, 2008 entitled “Last year’s model: stricken US homeowners confound predictions,” by Krishna Guha and Gillian Tett the reporters present a new market and consumer reality. The divergence from accepted and dogmatic lending logic has created a huge wound not only for lenders, but the rating agencies who attempt to provide investors with risk ratings. To say we have failed miserably in recognizing the changing sentiment is an understatement.
Across the board from prime to subprime, defaults are increasing as the new consumer reassesses their priorities in dealing with historical debt levels and obligations. The downstream implications of this will, if left unchanged, create a new market reality that few vendors, lenders, and pundits are prepared to address.
If the consumer is no longer behaving along historical patterns, then the cross-selling, up selling, targeted campaigns and even customer preferences can no longer be relied upon – not to mention scoring. Furthermore, the ability to securely lend or find individuals worth lending to will require extensive front-end screening, credit counseling, and even new types of default protections. The models of acceptable candidates will be greatly changed as this new consumer has little loyalty and treats the purchase of a home as little more than another financial transaction.
For organizations seeking to find “what’s next” in the markets and how can money be made, they are advised to read this article closely and objectively. Within the American lenders and their vendors, the blinders of delivery have still not been taken off to meet the new reality. At a recent conference, it was stated that American mortgage operations need to adopt practices from 10 years ago – it received great acceptance from lenders.
The problem is that the consumer has changed and without brain scans of consumers and artificial intelligence prediction models, no amount of fraud protection can prepare lenders and investors for a consumer that has adopted non-historical behaviors.
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Technology To Be Ready For The New Consumer
New Consumer - (noo ken-soo'mer). n. A new wave of sophisticated, self-servicing, technology-savvy customers who prefer to deal with all commerce and business transactions interactively and immediately via the Internet
As the Baby Boomers age, Generations X and Y, the emerging new consumers, are becoming a more powerful force within the mortgage industry, demanding a do-it-yourself immediacy in commerce that can only come from doing business over the Internet.
According to the National Association of Realtors, at age 46.5 the average American will reach their lifetime spending peak. The largest proportion of Baby Boomers was born in 1960, which means this group has just passed its spending peak in 2006, and it is already time to start planning for the next generation's peak.
Gen X, consisting of 40 million people born between 1965 and 1976, and Gen Y, the 60 million people born between 1977 and 1994, have a different view from other generations on how financial services should work. In order to meet the needs of this growing consumer base, lenders must have a better understanding of their mindset and adapt the way they do business.
For new consumers, technology is an essential facilitator that enables them to do everything themselves, without having to rely on others for services. Technology speeds up and simplifies every aspect of their lives. Whereas Baby Boomers are more comfortable working with traditional paper transactions (printing out bank statements, paper checks, etc.), new consumers prefer everything electronic and immediate. Many people in their 20s prefer to rely on their ATM cards and no longer even bother to carry cash.
Lenders must focus on the self-serviced consumer and gear processing systems, origination platforms and front-end point-of-sale systems accordingly. For example, lenders now need to shift their focus from meeting brokers' requirements to empowering new consumers to do more themselves. The customer experience is being redefined so that it is quicker and easier, faster and more efficient.
New consumers as homebuyers no longer need the hand-holding of a Realtor, but prefer a more virtual approach to searching for a home. Increasingly, the Internet hosts websites that allow users to see estimates on home prices of millions of homes across the nation, not simply the ones for sale. They also offer aerial views of homes, virtual tours with satellite imagery, the price of neighboring homes, local schools, value changes of each home and basic data such as square footage and the number of rooms per house. New consumers do their own research; they are simply looking for a third-party agent to seal the deal.
According to the National Association of Realtors, 60% of homebuyers use the Internet to look for prospective homes. Of these people, 77% found their agent online and nine out of 10 found their agent on the same site that listed their interested home. This means that buyers and sellers are already doing more of the research and preparation before even meeting the agent. Once new consumers have fully entered the housing market, this trend will increase.
On average, the most popular time people browse the Internet is between the hours of 7 p.m. and 2 a.m., or times when offices are closed. In order to capture the growing number of business leads coming in from new consumers through the Internet, lenders must rely more on automated technology and provide additional after-hours services. Nine-to-five business hours are not as effective when dealing with new consumers.
The ways lenders proactively reach consumers is changing as well. Agents and brokerages that are serious about serving new consumers should consider investing their advertising dollars towards Web sites frequented by Gens X and Y. Blogs and podcasting are other ways to reach this highly interactive group.
In the last decade there has been a great deal of commerce via the Internet with consumer goods, but this trend towards the Internet and technology has been much slower within the real estate and mortgage industries. Lenders must cultivate a more immediate and refined approach to continue to grow. The very definition of the new consumer yields a more customer-centric, technology-driven path towards profitably doing business with the homeowners of the very near future. It is now a race to win over the hearts and wallets of these young generations, and in order to stay in the running, businesses must constantly upgrade technologies and remain as responsive and available as possible.
Cary Burch CEO LSSI
http://www.lendersupport.com/
http://www.linkedin.com/in/caryburch
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