By Mike Whiting, Senior Vice President, Dallas Tax Operations 

If there’s one topic that’s dominating conversations in the mortgage industry, it’s artificial intelligence — how should AI be used; what are the underwriting ramifications given bias issues; how fast should companies adopt AI technology? No doubt, these are important questions given the inevitable use of AI when it comes to buying a home. But there’s another type of intelligence that lenders and servicers should also be paying significant attention to……borrower intelligence about mortgage matters. Turns out, first-time homebuyers, and even those who’ve purchased a home before, can be woefully under-educated about all things mortgage-related.

Industry research shows that even well-educated borrowers, many of whom are also tech-savvy since they are younger and grew up with tech, don’t know a lot about borrowing to buy a home. Here are three reasons why investing in what we like to call “mortgage intelligence” for borrowers is important for the housing market and will pay dividends in happy customers for both lenders and servicers.

1. It helps with lead gen and creates brand loyalty among borrowers

When purchasing any high-dollar consumer item, buyers typically want to be better educated on the subject in order to make the best decisions. When it comes to buying a home — likely the largest investment most people make — the stakes are high. Understandably, most buyers are focused the location, size, style and quality of home they want to buy. Financing the home and which lender to choose is merely the means to an end, even though research shows that people will shop around. In a survey from LendEDU, 80% of Millennials said they obtained multiple quotes from lenders before deciding on the best option. But how do they identify which lenders to get quotes from? For prospective borrowers, lenders that offer simple-to-understand information on the various elements of a mortgage have an opportunity to help these prospects understand the money part of their home purchase journey at the very beginning: what are closing costs; what is escrow; what is mortgage insurance; how much do I need to put down and do I need to have that in cash?

Helping first-time homebuyers navigate these somewhat basic questions can create stickiness and brand loyalty among prospects so that when they’re ready to begin the loan process, they already have a relationship with that lender. New lead-gen tools and point-of-sale solutions are also helping lenders identify prospects to inform marketing and communications initiatives, providing ample opportunity to further improve “mortgage intelligence” and create brand loyalty among homebuyers.

2. It improves the efficiency of the loan process and enhances the customer experience

Borrowers that have higher levels of “mortgage intelligence” help the entire loan process and closing go smoother, improving efficiencies for the lender. When buyers understand down payments, for instance, and what they are required to bring to the closing table, it avoids time wasted on the front end if they aren’t ready. It also helps them understand options if they don’t have 20% cash saved, i.e. getting help from a relative to meet the 20% or tapping into private mortgage insurance when they have a less-than-20% down payment.

For borrowers, those who are more informed will have a better customer experience in the mortgage process — not only with securing the mortgage on the front end, but also with ongoing mortgage payments. In analyzing approximately 1,287,300 consumer complaints from 2022, the Consumer Financial Protection Bureau’s 2022 Consumer Response Annual Report found that the majority—49%—experienced trouble during the mortgage payment process. That’s a lot of complaints, many of which could be avoided with better education and communication with borrowers.

3. It saves both time and money with customer service activity

For mortgage servicers, calls and complaints from borrowers cost time and money — no problem since that’s what they’re in place to do, but any customer call that can be avoided is also a cost that can be avoided. Escrow is one of the biggest topics borrowers are confused about or have questions about. To borrow from the Bard:  To escrow or not to escrow:  that is the question for new or first-time borrowers. Whether tis nobler in the mind to suffer the slings and arrows of missed tax or insurance payments and escrow shortages, or go with an escrow account which means increased monthly payments, but less work on the part of homeowners. Most will argue there are pros and cons to each approach, but it’s education about escrow that will help people make the decision, particularly since a significant percentage of borrowers do not understand escrow.

In a LERETA survey among 1,000 homeowners who had purchased or refinanced homes in the past four years, we found a significant lack of understanding when it comes to this aspect of homeownership. Only 52% of those surveyed said they were completely aware of how their escrow account worked, and more than a quarter (28%) are only somewhat aware or not aware at all that changes in their escrow accounts could affect their monthly payments. With property taxes rising due to increased home values, and insurance premiums rising due to more frequent and severe natural disasters, escrow accounts will no doubt see adjustments to cover these increases. When that happens, you can be sure customers will be calling. In fact, in our own LERETA call center that handles customer service for mortgage servicers, roughly 60% of calls were related to escrow issues in 2023. We expect that percentage to be just as high, or higher, in 2024. As such, we advise our servicer clients to take a proactive approach in their education and communications to mitigate frustration or uncertainty among borrowers and decrease not only call volume, but also call duration.

Artificial intelligence is the hot topic, but let’s not lose sight of the importance of mortgage intelligence and how the industry can help borrowers know more in order to improve the overall mortgage experience.

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