TRID Will Annoy Millennials, Not Entice Them

How efficient and customer-friendly the loan closing process is for homebuyers will be crucial in ensuring that millennials stay interested in the housing market. But the recent Consumer Financial Protection rule overhauling mortgage disclosures may be fixing an unbroken problem. Even worse, the new disclosure regime could help turn younger borrowers away.

Millennials are on track to be the largest source of new mortgage originations for the second straight year. This should not come as a surprise. With the oldest millennials now pushing 40 and the youngest edging into their 20s, the group is in the generational sweet spot for white picket fences and good school systems. But the millennials aren't like other generations of homebuyers that came before them.

Profiled in countless studies as nonconformists who mistrust the establishment and eschew ownership in favor of a sharing economy, millennials have been a question mark for the industry. Is it possible that the generation who launched the Occupy Wall Street movement just five years ago could be comfortable sitting down with a mortgage broker and signing on the dotted line for their shot at a three-bedroom colonial on a quiet cul-de-sac?

It turns out the answer is yes, for now. According to the latest J.D. Power Primary Mortgage Origination Satisfaction Study, overall customer satisfaction with lenders has improved 22 points in 2015 thanks to new technology and improved efficiency in the loan application and origination process. The trend was strongest among millennials. While overall customer satisfaction with the mortgage process averaged 793 out of a possible 1,000 points in 2015, the average score for millennials was 809. The average score for those 35 years old and older was just 789. Those scores are up from 792 for millennials and 787 for the over-35 group in 2014. Millennials rated the mortgage origination process higher across every customer area measured, including interaction with company websites and phone representatives as well in the loan application process.

But the study also showed there is a lot of room for improvement in satisfying millennials' demand for a seamless, customer-friendly process. Millennials were less satisfied than members of older generations in how they received communication from mortgage industry providers about the process. When asked if their loan representatives completely explained the entire process to them, from application to closing, just 62% of millennials said yes, versus 70% of those 35 and older.

Meanwhile, 58% millennials in the study indicated their options, terms and fees were not completely explained, which could be improved as a result of the new CFPB regulations.

Yet millennials' future satisfaction with the home loan process could also be challenged by the CFPB rule, which went into effect last month, if it slows the process. The rule, mandated by the Dodd-Frank, combined duplicitous requirements of the Truth in Lending Act and Real Estate Settlement Procedures Act into an "integrated disclosure." The new "TRID" rules were meant to ease the disclosure, but they actually introduced new required steps in the mortgage application process. They include a loan estimate containing detailed credit costs and transaction terms, which must be sent to the credit applicant within three days of their loan application, and a closing disclosure, which contains summary details of the transaction. Industry experts have warned that the document processing requirements associated with the new rules will extend the mortgage application process by anywhere from one to two weeks.

New inefficiencies could hamper the industry as it stares down a generational shift in its core customer base toward borrowers who have become used to consumer experiences being quick and user-friendly.

Applying for a mortgage, even under the best circumstances with the best technology, is not an inherently fun process. Wrangling paperwork, comparison-shopping interest rates, remembering past addresses and phone numbers for credit checks — these are all cumbersome at best. Given those relatively high hurdles to customer satisfaction, we've found that the one area where top performers consistently set themselves apart from the competition was on communication, both via digital and via interpersonal contact with loan representatives. In fact, we found that when lenders provide an accurate timeframe estimate with proactive updates, satisfaction with a cycle time of 61 days or more is equal to the satisfaction associated with a cycle time of less than 30 days.

With the new CFPB rule potentially resulting in loan delays, institutions may want to double-down on their communication strategies to ensure borrowers are informed about changes to the process. This may mean technological advancements, or more old-fashioned communication. Increasingly, the secret weapon for mortgage lenders who will succeed amid the current dynamics will be a smart deployment of both technology and more high-touch means that helps lenders communicate more frequently and more effectively with their customers.

Craig Martin is the mortgage and financial services practice leader at J.D. Power and Associates.