Deborah Erickson has seen a lot of changes during her time in the mortgage lending industry, but now she is thinking about the trends that affect millennials.
Specifically, the way the market, evolving regulations and the growth of technology could be construed as positive for younger buyers, yet millennials are not making the leap to buy homes like their parents and grandparents did.
Erickson is area mortgage sales manager at Fifth Third Bank of West Michigan, which has a mortgage loan portfolio that has grown from $1.02 billion in 2014 to $15.36 billion in 2015.
She said the fastest growing types of financing Fifth Third West Michigan offers are construction/permanent financing (a three-stage mortgage that allows borrowers to finance construction of a home), jumbo financing (a home loan for an amount that exceeds conforming loan limits established by regulation and is capped at $417,000 in most of the U.S.) and conventional financing (a loan not insured or guaranteed by the federal government).
Erickson said mortgage lending is a complex business with lots of regulation, so it’s important buyers, especially younger buyers, understand the banking sector will meet them where they’re at, on whatever technology platform they prefer.
“(Our mortgage lending) is a mix of 60-40 — 60 percent do in-person transactions and 40 percent deal through the phone and computer,” she said. “Our phone and internet technology has been robustly upgraded to handle digital applications, so this may account for the growth in that respect. But, due to the complexity of mortgage lending, we’re finding that a lot of our customers still want face to face. And we can accommodate that.”
“Millennials may not want to come in, but we do have a very interactive digital space,” she said.
One theory Erickson posits about the lack of mortgage lending growth among millennials is they may be hanging on to low consumer confidence as a holdover from the Great Recession, paired with the idea that sizable down payments are the way to go.
“It very well could be that they’re assuming you need 20 percent down, but you don’t,” she said. “We want them to see us as a hometown banker. We’d love it if you could save up for a down payment, but maybe you don’t need to. Maybe you qualify for one of our down payment options.”
Such options, she said, include a down payment assistance (DPA) program Fifth Third began in July, in which the bank extends a certain percentage of the down payment to the buyer depending on whether he or she meets income or property location requirements.
“We realized that 50 percent of our customers are struggling to come up with the down payment, so we are literally going to give them up to 3 percent down of the purchase price,” Erickson said.
A trend that may be discouraging to first-time home buyers or even legacy buyers is the amount of paperwork now required with each loan.
“We’re saying yes, we have a lot of appetite to approve loans, it’s just the documentation requirements (are stringent),” Erickson said. “We encourage customers to find a really good loan originator to help guide them through the multiple layers of documentation.”
Despite the heavy paperwork, Erickson said she believes the pros outweigh the cons for both the bank and the buyers.
“We’ve been able to help more people in the last 15 months than in the past seven years,” she said. “We saw more widening of guidelines (with TRID/Know Before You Owe regulations), so we can help more customers, but the other side of the coin is we have to document more thoroughly. It’s a different experience from 20 or 30 years ago.”
Erickson said a factor weighing on consumer confidence may be the post-election jump in interest rates for mortgages. But she said buyers need to take the long view.
“Even with the increase in interest rates (post election), it’s remarkable how low they still are,” she said. “When I joined the bank out of college in 1991, the rates had just gone below 10 percent. Last week, the interest rates were at 3.5 percent. Now, we’re seeing rates at 4 to 4.25 percent. When interest rates are up, that means the economy is moving.”