Industry concerns heading into 2020, in many ways, feel the same as they have over the past few years. How do lenders fight back against margin compression and elevate the lending experience to attract more consumers? To achieve a solution to this age-old problem, lenders have to think differently. Our conversations with industry experts revealed a way to do this: connect with the unlikely consumer and develop them into the ready-now consumer.
Curious about industry challenges and opportunities in 2020?
From prospects to customers
The MBA shared forecasts with Blend, anticipating a total mortgage market decline of 8% in 2020 while expecting purchase lending volume to increase by only 2%. Due to this anticipated downturn, Craig Focardi, senior analyst at MBA, believes “lenders will need to create strategies to source more purchase loans from realtors, builders, and the internet.”
Sourcing more means thinking outside the box in a few ways:
- Whom you connect with
- How you connect with them
- The message you send them
Defining the ready-now consumer
Tony Thompson, CEO and founder of the National Association of Minority Mortgage Bankers, thinks lenders should be connecting with consumers that are currently slipping through the cracks. With borrowers continuing to seek out online mortgage experiences, Thompson believes “lenders will need to develop playbooks to educate consumers who think they can’t qualify for a home and transition them into ‘ready-now’ buyers.”
Thompson sees advisory and educational activities as key to winning customers. In order to transition this group into buyers, lenders need to help them understand what they can qualify for and what they can afford. This includes sharing insight into topics like credit scores, how debt-to-income ratio is calculated, and why tax returns are incorporated into lending decisions. Lenders are the experts, and they need to proactively provide consumers with the information needed to empower intelligent, engaged financial decisions.
Statistics indicate that consumers overestimate mortgage requirements, and a substantial proportion of potential consumers skip out on the lending process because of preconceived notions around their ability to borrow. Not only do these assumptions minimize the general populations’ ability to enact their dreams, they also artificially limit the size of lenders’ customer pools.
Lenders who take the time to understand their customers’ needs, package that information in a comprehensible way, and proactively deliver this message will be far ahead of competitors who rely on customers to take the first step.
Creating the ready-now consumer
Leading millennial expert, Chelsea Krost believes “banks will earn trust with next-generation borrowers by sharing value through content marketing and social media channels that educate and engage.” This educational role is new to many lenders, so it’s worth noting what these leaders are referring to. A transactional strategy based purely on selling isn’t the right approach for engaging people unaware of their purchasing power. Instead, lenders can employ a relational strategy to help consumers understand how financial services can work for them.
For those who don’t think getting a mortgage is a possibility, educating them on a healthy budget for a down payment is more valuable than just trying to sell to them. There is a lot of value in engaging with millennials in particular, as young people with short employment history or minimal credit history can think these conditions exclude them from eligibility for a mortgage, which isn’t the case. This educational approach, which incorporates teaching and advisory, will not only be appreciated by consumers, it will also serve to transition them into valued customers.
With a tough market ahead in 2020, lenders need to source customers more creatively. A successful strategy will involve more than just selling; it will require engaging with consumers in a new way. Educating consumers on potential financial opportunities will bring success for lenders in 2020.