Once upon a time, most Americans went to their most familiar bank to apply for a home mortgage, often without comparison-shopping. Today, with an $8.36 trillion market in total home mortgages, competition is fierce and loan shoppers have become more discerning and savvy. At last count, there are 6,913 home mortgage lenders in the U.S. that comply with the Home Mortgage Disclosure Act (HMDA), homebuyers certainly have plenty of options in a lender. Increasingly, non-bank lenders make up the majority of the market. According to Bankrate.com, the top 5 U.S. banks made up 29.2% of the total mortgage market share in 2015, while the total bank share has declined steadily, at 43% in 2015, down from 47% a year prior.
In January 2017, ValueInsured asked American homebuyers in its quarterly Modern Homebuyer Survey what benefits they valued in a home mortgage lender. The results may challenge conventional assumptions but are consistent with housing industry and consumer trends in that homebuyers are moving away from big-brand names, and demanding more innovative solutions:
- When asked if they prefer to borrow a home mortgage from a well-known, big-name bank, barely 1 in 2 Americans (51%) said they would prefer it. Please note each survey participate was permitted to choose more than one lender benefits.
- Upgrade buyers (61%) are more receptive to borrowing from a big-name bank than first-time homebuyers (41%). A likely reason is upgrade buyers are typically older, have borrowed from a big-name bank in their previous home purchases before the proliferation of non-bank lenders, while first-time homebuyers are borrowing for the first time after the 2008 housing crisis, which has hurt the reputation of some big banks.
- That said, also due to their experience having borrowed a home loan before, upgrade buyers are most attracted to lenders that offer the best rates. These borrowers likely need the least handholding; and put more value in competitive rates and points. 75% upgrade homebuyers want a lender with the best rates.
- Overall though, Americans (64%), Millennials (74%) and first-time homebuyers (61%) most prefer borrowing from a lender that offers the option of down payment protection. One possible explanation is that these homebuyers make the presumption that if a lender offers down payment protection, it must be consumer-centric and therefore also offers the best rates. It could also signal a new definition of "value" which is important as rates rise and get compressed from lender to lender.
The overall results of these latest findings are at once alarming and encouraging for the home mortgage lender industry, depending on the lender’s orientation. It points to the trend that mortgage borrowers are becoming less complacent, and more discerning. They are more likely to see mortgage rates and points as commodities, and they want more extras. It is also encouraging as it points to demands and vision for more homebuyer-empowerment solutions. For a lender committed to innovations and customer solutions, this should be a welcomed trend.
In a housing industry that has had a history of being highly bank-centric especially prior to the housing crisis, consumers seem to increasingly understand their power, and are expecting lenders to earn their business. This shift in power balance is a healthy one for the industry – it empowers the consumers, giving them more options, and provides more incentives for lenders to further innovate in order to stay competitive.