Clash of the Titans: Gen Y and the CFPB

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TME-Barbara-PerinoPhotography by: ©Michael B. LloydAs much as we hate to admit it, the “Baby Boomer” generation, of which we are a part, is no longer setting the standard for how things are done, what products are offered or how and in what format information is communicated. This hallowed position that has been ours for over 50 years has now been taken by the second largest generation ever in the United States. This is a group of 72 million individuals that are affectionately known as generation “Y.”

Generation Y, or as they are sometimes called, the Millennials, were born a few years before the laptop became the most common tool for working, learning and communicating. This is the generation that is more comfortable using a phone to text a message to someone rather than calling or even using an e-mail. Getting an actual hand-written letter that has been mailed through the postal system is as arcane to them as not having a telephone is to the Baby Boom generation. They are taught by computer programs from babyhood and are less comfortable using a pencil to complete their homework than just typing it up on the iPad. There is even debate about the need to teach cursive handwriting anymore as the use of e-signatures, e-mails and texts supersedes the need to actually sign any documents.

This generation is also on track to become one of the most learned generations since the access to information is at their fingertips when needed. In many ways it is fun to have a conversation with these individuals who will whip out their iPhones at the drop of a hat in order to find out whatever fact or figure they need to answer a question or complete the conversation. The process of memorizing information in order to succeed is just not within their comprehension. After all, why memorize information when you can just ask Google? All in all, they are the most technologically proficient generation in the world and they are constantly changing the way they connect and communicate.

And speaking of communication, the need to connect with others has become a constant with this generation. Social media such as LinkedIn and Facebook are always easily accessed and used. The members of this generation not only keep in contact with each other, but use it as a source for whatever it is they are looking to find or want to buy. This use of technology also makes them extremely efficient and impatient with interactions that are time consuming. It is not uncommon to find that they are having a conference call, while finding a place to have dinner, instant messaging with the babysitter and buying tickets for a weekend event. Yet they are also the generation that is driven to find the perfect work-life balance.

So what does all this mean to the mortgage industry? As more and more of this generation look to buy homes and begin seeking that first mortgage how will we work with them to get this done? After all, they need to find us and we need to collect all the paperwork, complete the application and answer questions, and that’s only at the first contact. Eventually we will need to obtain independent information, get letters of explanation, have an appraiser review the property, schedule a closing and get legal documents signed. Will these individuals be willing to give up time to make these things happen or will they demand a more technological approach?

Equally important to the industry is our need to make sure that all the new regulations and associated safeguards are in place and effectively explained to these new borrowers. We have to be concerned that the complexities of a mortgage loan application, and the intricacies of the borrower’s legal obligations cannot be easily communicated through an instant message. Will we find that a few years after closing, these borrowers are coming back to say they were never told about some detail of the loan they chose? How will we “protect” the borrower from entering into a harmful financial position if they only want to communicate through technology? Furthermore we have to be able to substantiate that the communication occurred and that borrowers were given what they need to know. Can we do that with e-mails and texts?

As it has been made very clear, loan officers, underwriters and servicers, must make sure that consumers are kept abreast of the process for approving the loan, ensuring that we have the information we need to evaluate their ability to repay and help them with issues that may impact their monthly payments. Much of this is based on the sending and receiving of documentation. Unfortunately the Millennial generation is not inclined to spend time and energy digging out historic documentation or taking long periods of time filling out forms and listening to information which they believe can be gathered more quickly using technology. So where does that leave us? Should we ignore this dependence on technology in favor of doing things the way we used to just to make sure a “qualified mortgage” really is qualified? Or should we revamp our programs and processes to fit more into the world with which they are familiar?

One recent application taken by a loan officer exemplifies this conundrum. The applicants contacted the loan officer through his webpage, leaving a message that they wanted to apply for a mortgage. He contacted them to set up an appointment for taking the application. Their response was to inform him that they didn’t have time to meet and they asked: Could you just e-mail it to us? After doing this, they sent it back to him completed but unsigned. The loan officer sent them back an e-mail asking that the application be signed and letting them know what additional documentation he needed. They responded with a text message attaching the e-signature application and copies of some documents. Gathering the rest of the documents and completing missing information was done through a series of instant messages. At the end of the process the loan officer had never met the applicants, yet the entire process had taken less than a day to complete. What happens if later these applicants come back and say they didn’t understand the terms of the loan or that they could have obtained a lower rate by paying additional discount points? Unfortunately we may find that when the regulators come to visit they will not accept our word that “we sent them an instant message” as proof of compliance.

This is the challenge for technology companies. We need technology developers and providers to find a way for originators and servicers to discuss, validate and store the communications that are a critical part of compliance with the CFPB requirements. In addition, we need to be able to pull the data together and analyze it to ensure that we are complying with all these requirements. It is very possible that in the near future, as the CFPB and other regulators continue to pull together large amounts of data, that we will be left trying to prove something happened by relying on our memory or a series of handwritten notes. Is there a way to document each individual applicant’s information and communication from their first stop at the website to the last conversation with their servicer? Is there a way to validate that they are aware of and knowledgeable about all facets of their loan? Is there a way to store instant messages that confirm they have read and understand all the measures used in evaluating their ability to repay the debt? How do we do all this without driving up the cost of origination and servicing to the point of it being too expensive to stay in business? Or do we realize that companies that are not technologically savvy and data-driven will not be able to survive?

There is no doubt that technology is the mainstay of the Millennial generation and that they are the next titanic wave of consumers to hit the industry. There is also no doubt that the CFPB has a gigantic wave of regulations and requirements that mortgage companies must continue to face. Each of these entities are titans in their own right. The fact that each has a disparate need and each demands that their way is the only way leaves mortgage lenders and servicers in the breach. The use of technology, which companies in this space have been touting for years, appears to be the only way to survive. The mortgage industry is depending on technology providers to develop a peaceful solution that satisfies both of these titans and allows us all to have a happy ending. The question is: Will lenders and technology vendors alike be up to the challenge?

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