News

Dazed and Confused Consumer

Source: American Land Title Association
January 18, 2018

To read the full article from alta.org, please click here

Two years after the Consumer Financial Protection Bureau (CFPB) released a survey that showed only half of all homebuyers shopped for their mortgage, Fannie Mae shared results of a study that concluded there’s a need for greater awareness of education earlier in the mortgage process for homebuyers.

Fannie Mae conducted research in Dallas, Texas; Memphis, Tenn.; Cleveland, Ohio; and Knoxville, Tenn. One-hour individual in-depth interviews were conducted among 54 lower-income first-time homebuyers. In addition, eight two-hour mini-focus-groups were conducted among real estate agents and loan officers who have experience working with lower-income first-time homebuyers and pre-purchase homeownership education/counseling programs.

All three groups interviewed agreed that pre-purchase homeownership education empowers consumers with knowledge and confidence to be “financially and emotionally prepared” for homeownership. Six factors appear to impact the effectiveness of the education:

  • Awareness: Respondents indicated they had little or no awareness of pre-purchase homeownership education—except for mandatory programs required for specific loans. In current practice, participation in education is primarily driven by referrals made by loan officers in order for borrowers to qualify for specific loan products or benefits, such as down payment assistance, and those referrals usually come late in the home-buying process.
  • Motivational Barriers: Buying and financing a home can be stressful, and consumers are not eager to take homeownership education during an already stressful time. Loan officers often see education as just one more thing on an already long closing checklist. Real estate agents focus on finding the home and consider providing the instruction as beyond the scope of their services.
  • Content: Both consumers and professionals agree that the content they saw was comprehensive and helpful. It covered the entire process from creditworthiness to loan application and home maintenance.
  • Channel: Lower-income homebuyers had a strong preference for in-person learning rather than online because they value personal interaction, customization and a hands-on approach to education. A few consumers noted that online learning offers convenience and flexibility, but say it needs to be highly interactive.
  • Incentives: Consumers and professionals agreed that incentives are important for motivating participation. Even small offers, such as $100 toward closing, appraisal or inspection, would make a difference.
  • Timing: Poor timing was a key complaint. Homeownership education usually happens late in the process, often two to three weeks before closing. Both consumers and professionals suggest that it could be a requirement for pre-qualification.

Joe Weisbord, director of credit and housing access for Fannie Mae, said the research “showcases the need for more effective collaboration across the industry to support a timelier and effective educational experience, one that empowers the consumer without adding complexity or delay to the home-buying process.”

While the groups understand the value of education, there are motivational barriers to wider participation:

  • Homebuyers: Homebuyer education involves time and inconvenience. It’s “another hoop to jump through” during an already stressful time. It sounds like school and involves coming up with more money if a fee is involved.
  • Lenders: Homebuyer education is one more thing on the long list of paperwork to make the deal happen. Loan officers have a deal-centered, transactional mindset. Some are concerned that borrowers will learn something that could kill the deal or lead them to other lenders.
  • Real estate agents: There is an overall “not my job” mindset. Real estate agents have no concrete incentive or motivation to refer their clients to homebuyer education. They view lenders as experts on loan-related steps and processes and want to guide or control their clients themselves. Like loan officers, they are concerned that borrowers might connect to another real estate agent or deal.

The study showed that homeowners rarely participate in programs unless they are required to take educational courses and were referred to by loan officers for loan qualification requirements or benefits such as down payment assistance programs. In fact, very few even knew the range of programs offered.

“There is considerable fragmentation in the (homebuyer education) landscape,” according to the study. “Virtually no consumers and only a few professionals understand the range of (homebuyer education) providers and offerings. There is almost no voluntary participation by consumers or professionals. Consumers see the value in these programs only after the fact and will not be motivated to participate without concrete incentives.”

A study released by the National Association of Realtors (NAR) supports the notion that consumers are confused and need additional education about the mortgage and homebuying process. According to NAR, 87 percent of non-homeowners think they need at least 10 percent down in order to purchase a home. Matt Ishbia, chief executive officer of United Wholesale Mortgage said that it’s surprising people still think this today. He said it’s the industry responsibility to educate consumers about the options.

“People don’t know about this; we have to educate them. That’s our job in this industry,” Ishbia said. “Educate consumers, educate the millennial generation, educate everybody. They actually think they need to save 10 or 20 percent down, that’s why they’re over there renting.”

HOP to the Rescue

More and more ALTA members have taken the offensive, however, to educate consumers and others involved in the real estate transaction about the benefits of title insurance. Through ALTA’s Homebuyer Outreach Program (HOP), ALTA members have access to many resources to communicate with homebuyers, real estate agents and others. The resources have proven beneficial in buyer-pay states. While adoption of HOP in seller-pay markets has been slow, title agents do understand the value of educating consumers about the product.

In Nevada, Western Title Co. purchased an advertorial in its weekly business newspaper. The full-page advertorial titled “Home Buying Simplified,” describes how Western Title implemented HOP to better inform consumers about the home-buying process, including the benefits of title insurance and escrow.

“Often in the past, Western Title marketed and spoke directly to real estate professionals,” said Sylvia Smith, Western Title’s president. “While we still advocate working with these professionals, Western Title is trying to break down barriers and boundaries to speak directly with future homebuyers in new ways, and explain what we do in easy terms. This has been accomplished by our newest education tool—HOP.”

Western Title provides HOP flyers to help explain why buyers need to protect their property rights and purchase an owner’s title insurance policy. The title company also makes daily posts on social media—including Facebook, Twitter, LinkedIn, Snapchat and Instagram—to help explain title insurance.

“Since our renewed role on social media, we’ve had a large number of consumers call to ask more questions,” said Chad Felix, vice president of marketing and sales for Western Title. “We have also had Realtors tell us that their clients have mentioned seeing Western Title online and feel more inclined to use our services.”

In addition, Western Title holds seminars for prospective homebuyers.

“These seminars act as a lightning rod to inform the people and help them act with confidence,” Smith added. “By the end of the seminars, these future homebuyers will know what Western Title does, how it helps them and how they can protect their property rights.”

Meanwhile, Republic Title of Texas has used HOP marketing material in its corporate office.

“We have two large training rooms dedicated to providing education classes for our customers,” said Lindsey Carroll, vice president of marketing and communications for Republic Title of Texas. “We branded and blew up some of the ALTA pieces along with pictures of our employees for an impactful HOP-themed wall.”

#HAPPYCLOSINGDAY

Ironclad Title in Louisiana is another title company embracing the HOP mantra. And it’s paying dividends. Kaelyn Guillory marketing director for Ironclad Title, said that within the first two months of implementing HOP material, the company experienced a 30 percent increase in production. How did they do it? Guillory said it started with internal training.

“Our member partners sat down with us and we told them that we needed to start doing team trainings once a month,” she said. “We changed our entire work culture because everyone bought into it from the top down.”

To build the culture, the Ironclad staff took the RESPA quiz together. “We all passed. Thank god!” Guillory said.

Once everyone was trained, the company then cleansed its vocabulary and soaked in the HOP nomenclature. Little tweaks included using the word “benefit” versus “value” when talking about title insurance.

“The point is to avoid industry jargon and use words that the common person can understand,” Guillory said. “After the vocabulary overhaul, we did a SWOT analysis for each person and then as group.”

The company also incorporated some of the vibrant HOP colors into its marketing. With traditional burgundy and grey, Ironclad Title’s colors were a bit common, according to Guillory. “We still have our rhino and burgundy in the back ground, but the text is colorful, and we’ve adopted a happy attitude and developed #happyclosingday that we use on our social media,” she said.

“We tell the homebuyers that they’ve been through a difficult process of buying a house and that today should be exciting,” Guillory added. “It shouldn’t be stressful when you come through our doors. We should be the happiest point of the experience. We need to realize that the customer needs to buy an experience. The only way you can make the customer a client is by retaining them.”

Ironclad has found success using the rack cards. The company attends quarterly expos and gives the material to real estate agents and lenders during these events.

“The rack cards are my saving grace because it takes hours to design something like this,” Guillory said. “Lenders and Realtors are excited to see a title company providing material that answers questions about title insurance, because that’s our job. Basically, HOP has brought our marketing effort into the 21st century.”

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