How Design Thinking Can Help Prevent Another Mortgage Bubble

Continuum tackles the mortgage disclosure form—and how telling the narrative of a home purchase played a decisive role in its design.

Three years after the financial meltdown, housing prices are still in free fall while foreclosures keep rising. Many American homeowners, burned by the home-buying system, are defaulting on their mortgages, taking the hit to their credit rating and walking away from homes that may have lost more than two-thirds of their value.

So, how did we get here? No matter where you put the blame—whether it's on the banks, mortgage brokers, or buyers—part of the problem is the whole home-buying process. It's complex, confusing, and emotionally overwhelming.

But buying a home doesn't have to be so hard. Last December, the newly formed Consumer Financial Protection Bureau (CFPB) and its new head, Elizabeth Warren, decided they would try to make things easier.

Drawing together experts from behavioral economics, public policy, linguistics, and design, the CFPB held a symposium focused on redesigning the mortgage disclosure form (MDF). Along with other innovation firms, they invited Continuum, to take up the challenge of making an easier-to-use version of the document that banks use to communicate to prospective home buyers the terms of their mortgages.


[Continuum's proposed redesign; click to view larger]

For those of us who were designers in the room, this was a dream come true: Here was a chance to remake a tool that plays a vital role in the lives of hundreds of thousands of people every year. But what happened that day turned out to be much more than streamlining a critical form in the home-buying process. Even much more than the redesign of a vital "touch point" within the larger "user experience." What happened was that the symposium's attendees discovered just how radical a solution Design Thinking could offer—not only to the problem of a broken mortgage process, but to public policy at its highest levels.

Getting the Basics Right

Before showing up for the symposium, the Continuum team tackled the homework that each of the attendees had been assigned: to design a shopping form for individuals to select the right loan.

It didn't take long for us to identify a set of design principles that would make the form significantly more usable:

? Speak the language that people understand: Translate financial units and concepts into terms that click with the consumer's mental model.

? Keep vocabulary clear and consistent: Make sure your words mean the same thing in every place they appear.

? Pare down to the data that matters: Cut out the information aimed at the bank; leave in only what the consumer needs.

? Make it easy to grasp: Use engaging visual cues that can shortcut the process of understanding.

But we soon realized that the look of the form was a small part of what mattered—and that a graphic redesign would only take us so far. So we stepped back from the form itself to see better the situation surrounding it—aiming to understand the part the form plays in the dynamic of people's lives.

We stepped back from the form itself to see the situation surrounding it.

What we discovered was that people can only make a wise decision about mortgages by holding their loan offers next to a clear view of their budget. So we incorporated this side-by-side perspective into the form—by adding a simplified calculator with inputs for monthly income and expenses and an output that compared the different loan offers in an easy-to-read affordability index.

Fixing the Bigger Problem

You just don't interact with the form that much; it's a back-of-house document trying to become a front-of-house document; banks and lawyers understand it but regular people don't.—Ken, a real-estate lawyer

We brought the same approach to the conference, where the challenge on the table was redesigning the Mortgage Disclosure Form (MDF). As we moved deeper into the home-buying process, we started thinking in terms of a more fundamental overhaul: designing not only for the actual situation in which people use the form's information, but for the drama which surrounds that scene. We needed to design the form for the sequence of moves that comes before and after applying for the mortgage and the emotional trajectory that people ride as they travel through it.

In other words, we recognized that we had in front of us a service design problem posing as a graphic design problem. A real solution would need to take account of the whole system of interactions in which the form played just a small part.

Streamlining the Surface; Redesigning the System

To tackle this deeper level of redesign, we zoomed out to see the ecosystem of interacting pressures and players that surrounds the MDF. We interviewed real estate brokers, lawyers and, of course, a number of people who had recently received a mortgage or refinanced their homes.

In the language of service design, we ?mapped the customer journey?—aiming to capture the choreography that people travel as they move back and forth among a range of partners. As we looked more closely, we found that the actual process of getting a mortgage looks nothing like the straight line assumed by the step-by-step tools currently available to home buyers.

People often start with house hunting instead of budgeting; they fall in love with a home and then talk to a mortgage broker; they compare loans, put together a budget, and realize they can't afford their dream home and start house hunting all over again with a better idea of what they can afford. And weaving through this network is a web of high-voltage emotions: familial obligations, attitudes, and values both explicit and deeply buried. It wasn't just a functional problem we had to solve; we needed to take into account a mess of emotion and anxiety that rarely has anything to do with what's rational.

The challenge became getting the story of the home buyer right.

These undercurrents of emotions were what we had to understand if we were going to redesign the MDF so it ?clicked?—so that it integrated into the way people really behave and plugged into the motivations that power them through their ordinary days. We didn't want to design a form that would be perfect in the abstract. We wanted to make one that would actually work inside the real lives of real people. In other words, we had to understand the shape of people's needs in order to make the new MDF fit them.

As we expected, the stress levels involved in home buying matched the size of the price tag, which is several orders of magnitude bigger than any ordinary purchase. What surprised us was the discovery that the closing is not the most stressful point in the process. In fact, stress typically plateaus while buyers are waiting for the closing, so by the time they get to the MDF there's not much left to worry about.

They asked for another check four days before closing....It was like being pregnant—no way to back out now.—Bryant, a first-time homebuyer

By stepping back from the original problem we had been given—redesigning the form—we started to understand how the moment of receiving the MDF fit within a much larger, much more complex array of interacting elements. And the kind of solution began to look less like improving typography and color and more like helping people make sense of all these elements in the context of their day-to-day lives.

From this perspective, a new set of design principles emerged:

1. Right Information

?Focus on key information that is relevant to individuals and fits in the context of their day-to-day lives.

2. Right Timing

?Make sure people get information when they can use it.

?Introduce key components early, so that buyers will understand what they need to know before they're too stressed out to make sense of new information.

?Stage information delivery to fit the rhythm of their day-to-day.

3. Trusted Guides

"Take some of the decision-making out of the buyers" hands, and shift it to sources they can rely on.

?Create the right context for human interactions.

Designing the Future

The challenge we had been given—get the look of the form right—had turned into something very different: get the story of the home buyer right. To solve the problem at this deeper level, we would need to remake the users? experience, so that people could move smoothly, calmly, and wisely through each of the moments that make up the home-buying process.

Stepping back to see a problem's human context must become a habit

Seen from a service design perspective, the mortgage process reveals itself to be much more than a simple transfer of information from bank to buyer. It's a drama—a sequence of interactions between various players, each acting within specific scenarios and for particular reasons that gives each of these interactions its own emotional tenor. Within this context, the mortgage disclosure form is almost like a prop and the only way to remake it is to first understand what function it's being used for. We need to understand what happens before and after it, to give the form its correct context.

This kind of reframing, this habit of stepping back to see the human context of a problem, needs to become a regular habit as we reimagine human systems. If we're going to ?win the future?—and take up President Obama's challenge to out-innovate the rest of the world—we'll need to move beyond a use of design to handle aesthetic problems and tap into the power of design to solve for meaning.

The symposium took place at the Treasury on December 6, 2010. Continuum participated in the second panel "Communications in Context" and also facilitated a discussion in the last session around designing a Shopping Form. The symposium's focus was to inform the creation of a new integrated form that combines the Good Faith Estimate (from HUD) and the TIL disclosure (from the Federal Reserve Board). However, the symposium was not solely focused on the forms, but on the wider concepts we should consider as we approach integration of the forms and improving them so they are meaningful to consumers. The CFPB is currently working on the integration of the forms.

Written by Monica Bueno, who leads Continuum's Service Design Group, with help from Pedro Sepulveda, Gianna Ericson, David Weik, Abby Bickel, Alanna Fincke, Dan Coleman, and Chiranit Prateepasen.

[Top image by Jeff Ruane]

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  • kaffin

    Nicely designed form but the banks would have done this already if they believed it would help them make more money. I'm in Canada and Bank of Nova Scotia's latest slogan is "You're Richer Than you Think". It makes me laugh and cringe ever time I see it.

  • Ken Rowland

    We will need (a) CONTINUUM's system redesign help, nascent in form as summarized in this piece by Monica Bueno, and from many other professionals, as we move through the state-by-state continuum of a Class Action Lawsuit against the financial institutions causal to the mortgage and homeownership fraud of this most recent past.

    This litigation and its resultant new companies, financial industry, and instruments -- that will be organized under the umbrella of the treble damages provided by the RICO statute (for funding purposes) -- WILL also bring to Justice the quasi public-private conspiratorial financial institutions and their corporate executives, now to be parsed and liquidated, or re-formed into more productive, participatory components.

    The resultant new model, this shift in homeownership -- a new protocol NOT a new paradigm -- should grow from a re-designed financial homeownership system in the United States. It will be a new program and a replacement network of financial institutions, zip-code-by-zip-code, to be formed as an improvement from its progeny, but in its stead.

    In their moment of existence upon this speck known as Earth, in these cosmos, financial institutions extant have failed in their mission for both their own stockholders and the homeowner consumer. The latter -- the American Consumer -- NOW, in its totality, is too big to fail! A just and fully accountable new financial modality needs to be created, will be, and within context.

  • Peter Davis

    Ken, I agree with you that the financial industry is a disaster of criminally epic proportions, but what makes you think they've failed. Their mission is not to their stockholders or customers; it's to the execs, investment bankers and trading desks that make their money.

    Their mission is NOT to serve the public. Their mission, which is never state, is really to rip off the public. To take on massive leverage for trading in the commodities and currency markets, as well as the over-the-counter markets (especially energy); to finance infrastructure projects in the third world; and to act as proxies for the World Bank and the IMF to feed bad loans to the Third World. And when all this stuff blows up - which it always does - they have the Fed to bail them out.

    This isn't conspiracy theory stuff. It's true and very well documented. The Fed does not exist to manage the banking system. The Federal Reserve Act of 1913 was actually written in 1909 by JP Morgan and the heads of the other major US banks, for the express purpose of bailing out these banks when they blew up. The Fed is 80% owned, not by the US government, but by the world's biggest private banks.

    I have grave doubts as to whether we'll ever see litigation on a large scale. The public is going to have to get much, much more pissed off than it is right now. The public is still very complacent, which is why it continues to reelect the same goons who got us into this mess.

    I think the banking and monetary system as we know it now could eventually fail. It is necessary, but it won't be at all pretty and such a failure would make 2008 look like a walk in the park. But we may be headed there...

  • Peter Davis

    I'm a designer and I have tons of respect for what Continuum does. Having said that, this is a very naive article. The problem wasn't lack of disclosure on the part of borrowers or even fraud on the part of lenders. All that stuff takes care of itself if you simply force the banks and underwriters to take the full losses on their crappy loans, as well as forcing the borrowers to take responsibility for taking out mortgages they can't afford.

    Fraud will always occur. It's simply human nature. The way the market is supposed to work is that those who take risks and lose must take their losses like actual human adults. Those who break the law are supposed to be held accountable, but it seems that our government would prefer, instead, to bail out the banks who made fraudulent crappy loans while continuing to allow these same banks to hide their current insolvency* via made up accounting rules. Additionally, the government would also prefer to bail out homeowners in some ridiculous attempt to keep home prices up, which is, in itself, idiotic and destined to end in tears when the housing market completes its collapse.

    No amount of design thinking will solve the problem of actually enforcing rules that force people to take responsibility for their actions. I very much believe that design can impact the world in amazing ways. Otherwise, I wouldn't be a designer. However, this is not it.

    * And yes, the big banks - JP Morgan, Bank of America, Citigroup, Goldman Sachs, Washington Mutual, etc. - are all totally broke. JP Morgan, for example, has over $70 trillion - with a "T" - in liabilities. But you'll never hear that from the government or media. Designers have got to stop looking at mainstream sources for information if we truly want to effect change. The mainstream is the problem. Let's be the solution.

  • Monica Bueno

    Thanks for your candid feedback and expressing your point of view. It is true that there are many forces that are not under the control of designers. The article is not suggesting that the form will fix the problem or that lack of disclosure was the reason for the collapse. The article expresses the need to look beyond the form and identify opportunities where clarity of information and design thinking can help.

    Of course there are many aspects of this complicated issue that are impossible for designers to impact but I still believe that design can help make this a way better experience for consumers. In our work in the financial services sector over last couple of years, we have realized that not only we can impact the consumer experience but also more complicated issues around incentives structures for example - which leads to taking responsibility for actions.

    As designers we are increasingly getting involved in the harder conversations around policy, rule enforcement and business modeling and we are having a greater impact in these areas than we ever did before. Of course design alone cannot solve the world's biggest problems but you would be surprised at how often we are having to incorporate these harder issues into our everyday work. We have a responsibility to help when we can even if at first the approach seems naive. In my opinion, this is better than doing nothing at all.

  • Peter Davis

    Monica, I agree with you. However, my guess is that politicians - and probably the banks - would LOVE something like this, because it would be a classic misdirection play on their parts. They can adopt something like this and spin it like they're doing something to address the problems - which both groups have already framed many times as being problems of lack of disclosure on the parts of borrowers and lenders.

    My main point, however, is that something like this can actually make the problem more difficult to address. The issues leading to the mortgage mess are actually quite complicated and believe me when I tell you that the Fed, certain members of Congress and the banking industry wants to keep it that way - so that the public has no idea what the hell they're doing.

    This is a massive issue - exponentially bigger than what is reported in the media. What we have and continue to witness is the biggest financial fraud in human history - and nothing even comes in a close second. If the public had any idea how bad the situation is, it's very likely we'd see bank runs on a scale never before seen. The Fed and the banks know how bad it is, which is why they've done everything they can to cover it up, including changing long-standing accounting rules to allow banks to push trillions in losses in opaque, complex off-balance sheet transactions.

    A better mortgage form is a classic rope-a-dope: tell a public who's simply not educated on these issues and which has been subject to endless misinformation about the banking problems that the banks have adopted new disclosure forms in order to protect the consumer in order to distract the public from the fact that they're continuing to rip them off. It's just like the Dodd-Frank financial regulation bill, which not only has not regulated the big banks, but has actually made them more powerful by allowing them to expand and take on even more leverage. And you'll never hear it in the mainstream media.

    I applaud the effort to redesign the forms, but I think it can actually be counterproductive by giving people a false sense of security. It is the game played time and again by the professionals in the markets:

    "To buy 1,000, first sell 100." In other words, if you want to do one thing, first do the opposite on a smaller scale to trick as many people as possible. It's how the professional floor traders operated. On the trading floors, there was nothing wrong with this, because everyone down there knew what they were getting into. But the big bankers are not bankers; they're really over-leveraged traders who are playing a game in which they take unlimited risk, mask that risk under the guise of government regulation which simply is not enforced, and then stick us with the losses.

    You must understand that they WANT us to focus on these small issues. Just as Jamie Dimon, the head of JP Morgan, went in front of Congress a couple of years ago and told them that he felt the banks needed more regulation - right before his industry lobbied heavily to get that regulation written in favor of his bank.

    It's a tall order, but the big boys are playing for blood. They are, quite literally, playing for all the marbles. Their aim is to get as much money, as many real assets, as much land, as much oil as possible. If we are going to address these issues, we simply can't afford to settle for the small stuff. We have to go big.

    I am not an advocate of working through government channels, because the government has consistently worked to favor the big banks at the expense of everyone else. Again, this is not reported in the mainstream, because the politicians are playing a crafty game: spin to the public in order to get their votes, but appease the big money that funds their campaigns and gives them wonderful perks and million dollar salaries when they leave. Guess who loses?

    I like Elizabeth Warren, but the CFPB is a paper tiger. Both Congress and the Obama administration have repeatedly chopped her off at the knees and they would love nothing better than to shut her up and make her go away. She's just there to make them look good. Doesn't it make you wonder why Obama's chief of staff is a former partner at JP Morgan.

    It's not so much that designers are naive. But they are, by and large, ill-informed. Let's face it, design and finance aren't exactly bedfellows and this stuff is very hard to understand unless you follow it. A lot.