How has technology impacted the way consumers shop for mortgage loans? And are lower-income borrowers utilizing online resources when they shop for mortgage loans? These critical questions were the focus of a study conducted by Fannie Mae’s Economic & Strategic Research Group as part of its monthly housing survey.
The Score caught up with Steve Deggendorf, director of business strategy at Fannie Mae, who oversees the survey, and asked him to provide deeper insight into the survey’s findings.
1. One of the most attention-grabbing results of the survey was that lower-income consumers are less likely to use technology when shopping for a mortgage than higher-income borrowers. What are the implications of this for lower-income borrowers?
Answer: Results from our Fannie Mae National Housing Survey show that lower-income borrowers say they are more likely than higher-income borrowers to rely on experts, family and friends for advice and recommendations to decide how much to borrow or which mortgage lender to choose. This contrasts with higher-income borrowers, who are more likely than lower-income borrowers to say that they make their own calculations using spreadsheets or online tools to decide how much to borrow, and cite offer competitiveness as key when selecting a lender.
When consulting others, all mortgage shoppers—no matter their level of income—should seek out advisers that are trustworthy, knowledgeable and objective. At the same time, using spreadsheets and online tools and assessing offer competitiveness may not ensure a good outcome and may only be helpful if the calculations are accurate, the tools being used are objective in the advice they provide, and these consumers know how to accurately compare offers. Everyone needs to be diligent when mortgage shopping.
2. What other challenges are often cited by those mortgage borrowers with lower incomes?
Answer: Lower-income borrowers most often say that less paperwork, more-understandable loan terms and costs, and the ability to shop and compare loan terms from multiple lenders at the same time would have made the process of getting a mortgage easier.
3. Do a lender’s brand and its reputation influence how a consumer chooses a mortgage provider?
Answer: Very much so. The majority of consumers say that the reputation of the lending institution would have a major influence on their choice of lender. However, an even larger majority of higher-income consumers say that the competitiveness of the lender’s quote would be a major influence. This is not the case among lower-income consumers, who are most likely to cite reputation among the major factors influencing their choice of lender.
4. Is social media having an impact on how consumers choose mortgage providers?
Answer: Very few borrowers are telling us they are using or will use social media—such as online blogs, forums or social networks—in their mortgage-shopping process. Borrowers who have gotten their mortgage more recently are slightly more likely to say they have made use of social media for mortgage or housing-related guidance, but the percentages are still very small. Even desire to use social media for these activities in the future is very limited at this point, again with slightly more interest among more-recent borrowers.
5. In what ways do you think technology can empower consumers to be better mortgage shoppers in the future?
Answer: Consumers in our survey told us that they hope to use online technologies—both traditional personal computers and newer mobile tools—more often in the future. However, online tools currently do not seem to address consumers’ needs in more complex shopping activities, such as selecting a mortgage, as well as they do in less complex shopping activities, such as booking travel. For example, it is much easier to find the lowest-cost airfare for a particular route than it is to find the best mortgage deal for a particular borrower. Most consumer products are compared on straightforward price and quality tradeoffs. A mortgage offer has more moving parts (think rate, points, fees and service) and assumptions to consider (How long will I be in this home and mortgage? What is my risk tolerance?) in order to make an accurate apples-to-apples comparison between offers.
Improved online technology could address key issues consumers raise about the process of getting a mortgage. In particular, higher-income mortgage borrowers most often say that an improved ability to compare multiple loan offers would make the mortgage shopping process easier, and lower-income borrowers often say they would like to have loan terms and costs that are easier to understand.
Consumers also told us they would continue to use personal computers at two to three times the usage rates of mobile technologies. But consumers also say mobile technologies will show the largest use increases in their future mortgage shopping. This implies that there is a market opportunity to address the demand for more and better mobile mortgage tools. Mobile tools hold the promise of offering real-time information and education when and where it is needed, such as when visiting homes for sale or shopping for a mortgage in a face-to-face setting. However, enhanced online tools of all types could help all consumers become better mortgage shoppers and achieve better outcomes.
To learn more about our analysis of technology use in mortgage shopping, read our Fannie Mae National Housing Survey Topic Analysis.