At General Assembly Boston this week, RateGravity Co-Founder and CEO Patrick Boyaggi spoke on a panel of real estate industry professionals and disruptors about how data providers, mortgage lenders and government-sponsored entities are working together to deliver a more inclusive, personalized and frictionless experience in what we here at RateGravity have called one of the most opaque – and often corrupt – financial transactions that exist: getting a mortgage.
The panel discussed some of the reasons why millennials struggle to become homeowners, including debt, misunderstandings and a lack of choice and customization. These were some of the key takeaways that Patrick highlighted in his discussion:
Too Much Debt = Not Enough for a Down Payment
Millennials are experiencing massive amounts of debt, thanks to the heavy weight of student loans, which often prevents them from being able to save up for a down payment or even being able to make mortgage payments. While it was important for Fannie Mae’s standards to become more restrictive in the wake of the 2008 financial crisis, the pragmatic expansion of those lending standards since then has helped some millennials put less money down when buying their first home, opening up more opportunities for first-time homeownership.
Another obstacle, Patrick argued, is the high cost of housing, especially in cities like Boston, New York and San Francisco where many millennials are best positioned to find jobs.
The Lie of the 7 Minute Mortgage
“You still can’t get a mortgage in seven minutes, no matter how many times Rocket Mortgage says you can. And I don’t think you should be able to right now,” Patrick told the audience at General Assembly Boston.
Ultimately, the mortgage transaction is based on a consumer profile and the property value, and there needs to be a rigorous evaluation of both. Back in 2008, every file and every component in the mortgage lending process was a paper file. So, to think that we’re now interconnecting accounts is a great advancement. But, we’re still some ways away from being able to complete this transaction in minutes and without any human involvement.
In fact, when we started RateGravity, we tried to do everything digitally, because millennials said they didn’t want to interact with humans in this process. But Patrick pointed out that, when we did that, our customers’ actions told us something different. Our conversion numbers were not close to what we had expected. It turns out, millennials do want to trust a real person when it comes to this major financial transaction. So, once we added the human element to our mostly digital customer service experience, we saw conversions improve dramatically..
Lenders Try to Make Shopping Difficult
According to the Consumer Financial Protection Bureau, 77 percent of homebuyers apply with just one lender. We comparison shop for everything – from toothbrushes to clothes to cars – so it seems completely illogical for us not to shop around for a mortgage lender.
And many people believe they’re stuck with big banks when it comes to getting a mortgage, but that is not so. In fact, the top 20 lenders in the U.S. account for just 25 percent of the mortgage volume originated in this country. And the truth is, most community lenders are reputable, they have been around for a long time and they care deeply about their customers. That is why RateGravity works closely with community lenders and does not work with large, national lenders.
But the reason why there is such little comparison shopping is because lenders create barriers to entry. At RateGravity, there are no such barriers. We make it simple for every borrower to find the mortgage they deserve without requiring them to commit to any lender and they do so anonymously. We do soft inquiries for customers and we don’t require a social security number yet we can still complete the calculations necessary to determine if they qualify for financing.
The reason lenders do hard inquiries for customers is to create a higher switching cost, whereas we can pull in your data and tell you how much you can afford, so you can now shop freely, not having committed to a single lender and not having to divulge any personal information.
Ultimately, there are many reasons why some millennials are shying away from homeownership, but some of those can be solved through technology, innovation and excellent customer service. That’s why RateGravity is offering homebuyers the opportunity to comparison shop in a risk-free way and connect them to community lenders that care deeply about their customers.