The US mortgage landscape is constantly changing, and due to recent trends, the first-time homebuying experience has become fraught with new challenges and expectations. According to annual research by the National Association of Realtors, just about a quarter of homebuyers last year were buying a house for the first time – the lowest in the report’s history. This is because of rising rates, inflation, and post-pandemic turbulence in the country’s economy.
In this climate, mortgage servicing firms play a vital role in streamlining first-time home-buying experiences and ensuring compliance even as they mitigate risks. A good first purchase experience can translate into future opportunities, and servicers need to be aware of the unique financial and regulatory context shaping the service industry today.
Here are five first-owner mortgage servicing tips to remember as you navigate both compliant and non-compliant loans and look at maximizing today’s emerging opportunities:
1. DO upgrade your tech stack for a digitally native generation
The average first-time home buyer today is 36 years old. For context, millennials are those who were born between 1981 and 1994, making them anywhere between 29 and 42 years of age. Older millennials are now rapidly becoming first-time homebuyers, and they will bring all of their digitally native expectations to the table when it comes to loan servicing.
This means that borrowers may be less open to in-person meetings, they may want information faster, and they may measure servicing experiences using different benchmarks from previous generations. As a result, mortgage servicing firms need to upgrade their tech stack to adapt to first-owner mortgage servicing needs today.
2. DO take proactive steps to preempt and prevent payment default
The possibility of mortgage default is higher today as home prices have increased substantially without a corresponding increase in inventory. The research we cited found that most first-time buyers had to make financial sacrifices, such as cutting spending on luxury goods, entertainment, and clothes in order to make their home’s down payment, a challenge for more than 1 in 4 first-time buyers.
Mortgage servicing firms need to keep this reality in mind when designing and deploying their servicing strategies. Fortunately, recent regulations aim to modernize default communication by making room for electronic and remote servicing channels. Mortgage servicing firms need to act fast and speak with first-time home buyers in a language they understand in order to prevent the cashflow loss arising from defaults.
3. DON’T scale indiscriminately; maintain a lean operating environment to mitigate risks
High-interest rates may bring down refinancing demand in the medium term, thereby causing first-time homebuyers to continue generating profits for mortgage servicing firms for a longer period of time. However, even as firms scale servicing processes to meet this opportunity, they have to stay lean. Otherwise, any market flux may cause processes to break down, leading to potential staff loss and an impact on the bottom line.
Technologies like workflow automation and artificial intelligence (AI) can go a long way in optimizing mortgage servicing operations and making them more efficient. Particularly when it comes to compliant loans, automation can replace human effort in mundane tasks like collections, reports, the management of escrow accounts, etc.
4. DO adopt technology to offset growing servicing costs
Another reason technology adoption is a vital first-owner mortgage servicing tip is because of its ability to reduce the average costs of servicing a mortgage. After the 2008 recession and consequent regulatory upheavals, the cost to service reached an all-time high of $312, reports EY. Since then, it has steadily declined, coming down to as low as $240 – until 2023.
The cost to service is expected to rise to $271 once again. At the same time, mortgage servicing relationships have become more critical than ever before as the share of first-time home buyers shrinks year-on-year. Technology can offset servicing costs by reducing labor expenses, mitigating non-compliance risk, and even providing firms with new cross-selling opportunities.
5. DON’T rely on a one-size-fits-all model; gather big data for a comprehensive and real-time view of borrower finances
Big data capabilities can help mortgage servicing firms keep up with first-time home buyers’ changing financial conditions after they purchase their home. Interestingly, this is a diverse segment, with 47% of buyers using their savings for the down payment, even as 22% rely on a gift or loan from friends and family. 18% of this demographic comprises unmarried couples, the highest share ever recorded.
As a result, mortgage servicing firms cannot rely on a one-size-fits-all model when it comes to borrower profiling and servicing experience delivery. Big data (collected from third-party vendors, financial institutions, social media, public records, etc.) can enrich the information already contained in your warehouses and data fabrics and help make more timely servicing interventions.
Why Are First-Owner Mortgage Servicing Tips So Important Right Now?
Today, the first-owner mortgage servicing segment presents both a challenge and an opportunity. On the one hand, servicing relationships are likely to last longer, and borrowers’ digital know-how can reduce several of the previous issues faced by mortgage servicing firms (such as the operating expenses of in-person meetings or delayed communication).
However, homebuyers now are also older than in previous years, with less disposable income on average, and extremely diverse as a demographic. The right first-owner mortgage servicing tips, coupled with a strong digital bedrock, can help you navigate these factors and come out on the winning side. At Nexval, our team of 1000+ SMEs works with top US servicers to transform the servicing value chain for a new era of homebuyer expectations, as well as regulatory and economic realities.
Speak with our experts to know how you can benefit from these five first-owner mortgage servicing tips.