- Noah Echols
Money matters are a leading cause of stress in America. In fact, 76% of people say that money and work are the leading causes of stress. It’s no surprise then that, to limit stress, most consumers crave certainty when making purchases. They do research, ask friends and co-workers, and will even travel long distances to find the right deal. So, when it comes to buying a home – typically one of the biggest purchases consumers will make – the mortgage process can be extraordinarily overwhelming.
Recently, we’ve been working with a client on their mortgage application experience, and as a part of that, mapping the decisions that consumers have to make through the process from engaging with financial institutions to closing. We realized that, halfway through the process, the consumer loses all sense of control – never mind that the front half of the process tends to be filled with jargon and complexity.
For most FIs, the mortgage process requires the consumer to either go online or go into a branch to fill out an application. The consumer provides relatively basic information at first to get a pre-approval – work history, credit information, income, etc. Leading up to that point, most consumers will have done research to find the best rates, read reviews about customer service, etc. But as soon as the consumer submits the initial application, none of that research matters anymore. They lose all sense of control over the process and the outcome. The great rate that they saw advertised is usually not the rate they end up with. Their experience with the loan officer and/or underwriter is determined by how frictionless the process is, and more times than not, it is full of friction. The process is lengthy, invasive, and entirely one-sided. The loan is dependent on outside circumstances – the appraisal (often one person’s subjective opinion) and the inspection. Even the closing date is often dictated.
It’s no surprise then that the Millennial generation especially is putting off home ownership at worrying rates. It’s not that they don’t want to own homes; they actually do. It’s that there is a definite psychological barrier to doing so, especially in the age of push-to-order restaurant delivery, and other conveniences. Given this, very few FIs are doing anything to overcome this barrier of almost crushing uncertainty.
A few banks are addressing the complexity of the front half of the process by merging the evaluation stage of the journey with the conversion stage, shortening the process and arming the consumer with more specific information from which to make a decision. For example, SoFi allows consumers to get a pre-approval that doesn’t affect their credit, giving them an actual approved dollar amount and rate as opposed to what is advertised. Quicken Loans launched Rocket Mortgage (no pun intended), which is aimed at “reinventing the mortgage process to put the power in your hands.” And while the insight is there for this product, the execution still fails to fully address the underlining issue. Rocket Mortgage cuts down on the time the process takes by cutting out the verification of documents by connecting them digitally, but it doesn’t solve the problem of uncertainty in the latter half of the process.
It’s difficult to name any financial institution, start-up or otherwise, that is addressing this issue. The first to figure it out will take significant market share, but it won’t be easy. This isn’t a challenge of technology that FinTech can solve necessarily, and it isn’t one that educational content marketing can solve either. Sure, both of those things are important, but the real challenge lies in the process. As banks invest in customer experience programs, they will need to sideline the incremental changes that keep them in the race with Quicken and Sofi, and instead, play the long game by focusing on the much bigger challenge of alleviating the uncertainty after the consumer hits submit.