A Dream Becomes An Illusion

Gen Y’s preference to rent instead of own provides credit unions an opportunity to restructure products and diversify their loan portfolios.


In the past, owning a home was a big piece of the American dream. But that dream has changed. A new group of young adults – throwing away the chimera of homeownership – is stepping to the forefront making financial institution’s mortgage portfolio quiver.

Homeownership has steadily fallen among younger adults since the mid-2000s, according to the latest census data.

High unemployment has caused many Millennials and Gen Yers to put owning a home on the backburner. The two generations – born between 1975 and 1995 – have had to work jobs they’re over-qualified for, making a measly salary just to afford their apartment’s rent.

Generation Rent is coming. These young adults could change the definition of middle-class success.

Credit union executives should be thinking both about how this transformation could hinder their success with current products and how it opens doors for new, innovative products.

While housing prices have dropped and interest rates are at an all-time low, Millennials still have a hard time receiving a loan. Most lenders today require a large down payment and a steady source of income from borrowers.

Credit unions have the advantage over big banks in this market. Many credit unions have lower rates and are willing to work with members on a case-by-case basis.

And credit unions must keep up with the increase in modifications and reductions. Mortgage servicers are more eager than ever to help distressed homeowners with their mortgage terms, according to American Banker.

But distressed homeowners aren’t opening their mail anymore. Tired of solicitations, borrower response rates are low.

Concerned with these rates, Chase is FedExing letters to borrowers. Unless the terms of the loan change, borrowers won’t need to respond to be preapproved for modifications and reductions. Loan modification offers receive a 50% response rate, while letters offering refinance gain 80% response rates.

In preparation for Generation Rent, credit unions should start rethinking its mortgage products. Without first time homebuyers, credit unions’ loan portfolios will lag. But offering smaller loan products, along the lines of alternative payday loans, for rent would be beneficial to struggling young adults and keep the cooperative’s loan portfolio thriving.

Plus there are opportunities for financial literacy programs to flourish. Seminars that focus on renting over owning, student debt relief, and budgeting with entry-level pay will be successful with Generation Rent. If credit unions can get its young members to attend financial literacy programs, it’ll have a good chance of capturing young non-members through word-of-mouth marketing.

Credit unions should make financial literacy workshops and courses fun and interactive for Millennials and Gen Y. Separate the generation into more defined age groups because this generation encompasses a group that differs significantly from one year to the next. Avoid talking to older teens and young adults like they’re kids – that will only disinterest them. And keep in mind social media and technology is vitally important to this generation. The “student” will be on their smartphones anyway, so credit unions might as well take advantage and ask the attendees to Tweet and Facebook about the event.

Generation Rent wants to own homes. They understand the advantages to owning over renting, but they have a more transient lifestyle because of job instability. Credit unions must evolve to meet the needs of this generation’s new perspective on home owning.


Sept. 5, 2012


  • True, Generation Rent wants to own, but the goals of home ownership have changed. New homes aren't homes ideologically anymore. They're investments.