*Selling To The Next Generation*
**By Barbara Perino and Rebecca Walzak**
***Mortgage lenders would benefit from being aware that Generation Y (those who were born between 1980 and 1994) are beginning to enter the home purchase market more and more and their knowledge about the home-buying process is very different than previous generations even their Generation X brothers, sisters, cousins and friends (those born between 1964 – 1979).This will impact loan officer strategy as well as the mortgage banker processing the loans.
****How has this evolved over the years? Let’s look back:
****Up to now:
****When World War II ended, the American Dream of home ownership became very mainstream. Servicemen returned home reclaiming jobs they left and with the GI Bill of Rights in place, were able to purchase affordable housing. Mortgages were cheaper than renting and banking relationships created security for acquiring mortgage loans more easily. The typical house (some called the Levittown house) had two bedrooms, one bath and an eat-in kitchen and was on average 750 sq. ft in size. Family type relationships were established with local banks and mortgages were made by simply having a meeting with the bank president who drew up the paperwork, called the borrower in and got everything signed, quickly. Families would typically live in these houses for the life of the loan and beyond, many times increasing the size of the house by adding on rooms as the families grew.
****In the 1960s, the average size of new homes increased on average to 1,450 square feet as families became larger, society became more prosperous and people started spreading out into the suburbs. Mortgages were still based on the relationships people had with their bankers and savings and loans institutions. The same is true going into the 1970s. The average size of homes increased again, half of which had two or more bathrooms. These homes were typically passed down a generation when the parents decided they wanted to retire and move to a retirement home, hit the road in an RV or move in with the children.
****Even after the financial collapse of the savings and loan industry at the end of the 1970s, people were still buying homes with ease. Transitioning into the 1980s and at times paying double digit interest rates, the average homeowner could still afford a mortgage. Homes continued to get bigger, averaging 2,000 sq. ft. in size. The higher mortgage rates didn’t deter people from getting mortgages as there were new loan programs to choose from. During this timeframe, more and more families were dual-income households with the mother working to help sustain a lifestyle of convenience and comfort. Divorce was also becoming very prevalent in our society, thus more opportunities for more mortgage loans. The economy was booming in the eighties and people were buying second homes in locations where the family could go on vacation and enjoy the surroundings whether a beach community or a mountainous hideaway.
****In the early 1990s, the average home had four-bedrooms and a separate family room, formal dining room and a ½ bathroom located near the kitchen or entrance and a two-car garage. Homeowners consisted of the Traditionalists generation (our parents who were typically still in their original houses) and the Baby Boomers who by now are saving money, taking vacations, having larger families, enjoying life, living in larger homes. Moms were still working, supplementing the family income. Moving up into even larger homes was becoming more common in many areas of the country.
****By the 2000s Americans had incurred a lot of debt. Mortgage loans, two-car payments, installment debt, college funds, etc. By the mid-2000s home equity loans and second mortgages were a very common practice which has impacted many homeowners today as the daily news and the state of the mortgage industry can attest. No need to talk anymore about this as this article is focusing on what younger Generation Y is going to do going forward with being able to afford a mortgage and what the process is going to have to look like for them
****Throughout the eras of the 70s, 80s and 90s, the mortgage loan process encompassed a mountain of paperwork both for the borrowers to review and sign and for the mortgage company to process. Computers were used for streamlining some processes but our society relied more on filling out the paperwork by hand with pen and ink.
****Generation X (1964-1979) started buying homes in the 1990s. This generation took advantage of “first time homebuyer” programs offered by Fannie Mae and Freddie Mac. Their personalities were very similar in some ways to their parents (typically Baby Boomers) in that they are somewhat traditional in their thinking, conservative in their views and buying a home was very much a goal and focus of investing money into the American Dream. This generation typically bought in a community where other families live with a focus on good schools, community involvement and quality of living. They were much more comfortable to embrace computers and new technologies. The lenders were/are using vendors who supply software products to help make the lending process streamline and convenient although there is still a lot of paperwork to complete and process. Some of this generation used the services of on-line lenders such as Quicken Loans or Lending Tree with ease and liked the efficiency of a push of a button to help alleviate spending time doing it the old way.
****Generation Y (1980- 1995) is going to influence and change the way we view lending going forward. This generation stayed home with family much longer because of the cost of living, the lack of well paying jobs and high student loan debt. They have watched their parents struggle with debt, layoffs, loss of investments, sour economy and many other factors. This is the technology generation where they embrace doing things more efficiently through the use of social media, smart technology and not necessarily seeing the need to interact as much with people in the process as past generations have. Nor do they have the patience to sift through lots of paperwork which they feel is a waste of trees. It’s just as easy to sit in your room or at home and handle any transaction that needs to be handled by the simple click of a mouse, getting the phone with loan officer or even communicating via Skype.
****Today’s first time home buyers have a vastly different vision on what they want in a house. Many turn their noses up at the large homes and traditional homes their parents had to have. What’s changed? It’s partially a matter of mindset that has shifted since the Great Recession. These young people equate oversized houses and their large price tags with the real estate crash. They are realizing that a home is not necessarily an investment, thus many are renting. This next generation of home buyers has too much college debt in many cases, to buy a house. Realtor, Greg Fielding believes that high college debt is a problem because indebted graduates can’t take on further debt to become homeowners. He also feels that this could impact the starter-home markets for a decade or more as the next generation of first-time homebuyers is so burdened down with debt. This generation will have a harder time qualifying for home loans and will certainly qualify for smaller loans, until these debts are paid off.
****So what is going to possibly change in the mortgage lending process? Loan officers are going to have to understand the mindset of these younger generations when selling mortgage loan programs these young consumers can afford. What is going to be the appeal for them to want to acquire a mortgage? What will they have to do differently? What different tools and knowledge will they have to have? How will their interpersonal skills change? How will the cloud technology make the lending process more efficient?
****Something else to think about … the new generations of managers coming in to the mortgage industry is going to be another opportunity for change to occur. Selling services and products to Generation Y will require a new set of sales tools. Identifying and understanding the types of emotional roadblocks with this generation will have to be addressed as part of the sales cycle. With technology managing how things are done, will these managers ever see the value of seeing their customers face to face or would they rather just communicate electronically? What will these technological savvy individuals require in order to buy products and services?
****All of this is food for thought and needs to be taken seriously. How will you embrace change? If you choose to ignore they are different, be prepared to struggle with “this is the way we have always done it”. Eventually you will be forced to try something new. A suggestion would be to start having conversations with your leadership and possibly including younger generation from the staff. Get their feedback and opinions on what they would like to see change. Read some books on what other industries are doing to embrace a new way of being successful. The technology industry has already changed the way they keep their employees engaged and loyal. Google, Zappos, 3CInteractive are great examples of companies filled with Generation Y. Why not break the mold and get creative, embracing change that is coming.
****ABOUT THE AUTHOR: Barbara Perino is a Certified Professional Co-Active Coach guiding her clients who are executive leaders and their staff. Barbara has been trained through The Coach Training Institute (CTI) located in San Rafael, CA. She completed a Coaching Certification Program through CTI and the International Coaching Federation (ICF). Prior to becoming a coach, Barbara was a 16-year veteran of the residential mortgage industry in a national sales management capacity for property valuation and residential mortgage service providers.
****ABOUT THE AUTHOR: rjbWalzak Consulting, Inc. was founded and is led by Rebecca Walzak, a leader in operational risk management programs in all areas of the consumer lending industry. In addition to consulting experience in mortgage banking, student lending and other types of consumer lending, she has hands on practical experience in these organizations as well having held numerous positions from top to bottom of the consumer lending industry over the past 25 years.