About Face

To reach the full range of di­verse bor­row­ers en­ter­ing the mar­ket, lenders must re­think their strate­gies for out­reach and cus­tomiza­tion

National Mortgage News - - Contents - by bon­nie sin­nock

To reach the full range of di­verse bor­row­ers en­ter­ing the mar­ket, lenders must re­think their strate­gies for out­reach and cus­tomiza­tion

With mort­gage orig­i­na­tions on the de­cline this year, lenders that want to re­gain lost vol­ume or grow mar­ket share must work harder to iden­tify and reach un­der­served bor­rower seg­ments. Reach­ing these bor­row­ers may take more work, but it’s an es­sen­tial strat­egy at a time when reg­u­la­tory and in­vestor re­quire­ments limit how much lenders can open up the credit box to bring in more bor­row­ers.

Lenders need to go beyond the usual ef­forts and em­ploy strate­gies that dig deeper. Some lenders, for ex­am­ple, are tak­ing a closer look at Home Mort­gage Dis­clo­sure Act data in com­bi­na­tion with de­mo­graphic in­for­ma­tion to iden­tify and reach out to un­der­served eth­nic groups in their ge­o­graphic foot­prints.

But iden­ti­fy­ing and find­ing ways to reach un­der­served bor­row­ers isn’t al­ways ap­proached best at a high level by busi­ness-minded ex­ec­u­tives. Lenders need to look to their boots-on-the-ground staff, too.

It took a mort­gage ex­ec­u­tive’s per­sonal ex­pe­ri­ence and un­der­stand­ing of bor­row­ers and home­builders in his bank’s foot­print to come up with an in­no­va­tive model for homes that ad­dresses an un­met bor­rower need. While he wasn’t look­ing to build mort­gage or home­build­ing busi­ness on a larger scale when he came up with the con­cept, it has that po­ten­tial.

In­vestors like Fan­nie Mae and Fred­die Mac also rec­og­nize that the peo­ple on the front lines can be their best re­source, which is why they’re stag­ing sev­eral pi­lots with lenders that seek to solve co­nun­drums that make it hard to reach bor­row­ers.

These in­clude find­ing ways to lower down pay­ments for bor­row­ers with af­ford­abil­ity chal­lenges with­out tak­ing on un­due risks or in­creas­ing con­sumers’ loan costs.

Not all these ex­per­i­ments will pan out, but the ones that do are worth it be­cause they’re a gate­way to chang­ing the process and al­low­ing for prod­uct in­no­va­tion in to­day’s mar­ket.

Rather than think­ing of cer­tain bor­row­ers as square pegs in round holes, lenders and in­vestors are in­creas­ingly re­al­iz­ing that they will get fur­ther if they make changes to ac­com­mo­date cus­tomers, rather than try­ing to make peo­ple fit into pre-ex­ist­ing molds.

These tac­tics are not just short­term so­lu­tions. As con­sumer de­mo­graph­ics con­tinue to change, lenders that ef­fec­tively man­age them will set them­selves to max­i­mize their out­reach to their evolv­ing cus­tomer base long term.


About one-third of pur­chase mort­gages go to bor­row­ers in racial or eth­nic mi­nor­ity groups, ac­cord­ing to the Fed­eral Re­serve’s anal­y­sis of HMDA data. But the mi­nor­ity share of the mil­len­ni­als that dom­i­nate the work­force is over 44%, ac­cord­ing to the Brook­ings In­sti­tu­tion. And by 2060, the “mi­nor­ity” share of the pop­u­la­tion could be 56%, pro­jec­tions based on U.S. Cen­sus data show.

Lenders are tak­ing a closer look at mar­ket­ing to un­der­served eth­nic and racial groups be­cause of mar­ket share num­bers like that, ac­cord­ing to Kristin Messerli, man­ag­ing direc­tor of con­sult­ing firm Cul­tural Out­reach So­lu­tions. “The de­mand has in­creased sig­nif­i­cantly for hav­ing a di­ver­sity strat­egy from a busi­ness per­spec­tive,” she said.

With these changes com­ing, even lenders al­ready do­ing a lot of com­par­a­tive anal­y­sis of de­mo­graphic data and out­reach to un­der­served mar­kets may feel they need to raise their game.

“We’re al­ways look­ing for bet­ter sources of data be­cause house­hold mi­gra­tion is mov­ing at a faster rate than some of the data points,” said Ja­son Madiedo, pres­i­dent of Al­terra Group, which does busi­ness as Al­terra Home Loans. “We’re ahead of the curve. We just want to get bet­ter at it.”

The first step in an­a­lyz­ing lender out­reach to racial and eth­nic mar­kets is usu­ally look­ing at HMDA, Messerli said. Some lenders can be gun shy about us­ing HMDA for any­thing but com­pli­ance and worry that reach­ing out to one group could be per­ceived as a bias.

“They’re wor­ried about tar­get­ing and you do have to be very care­ful, but what they don’t re­al­ize is they are al­ready mar­ket­ing to a par­tic­u­lar de­mo­graphic, which is usu­ally the one that they are made up of, said Messerli.

HMDA is re­ally a com­pli­ance tool that wasn’t de­signed for mar­ket­ing, but lenders nev­er­the­less “could and should look at it for that,” said Mau­rice Jour­dain-Earl, a man­ag­ing direc­tor at Com­pli­anceTech, a fair lend­ing con­sul­tant and soft­ware ven­dor.

“With HMDA, most folks are fo­cused on the com­pli­ance, but they could use the data to gain some in­sight that could help them bet­ter un­der­stand their mar­ket op­por­tu­nity for growth,” said Trey Sul­li­van, CEO of TruPoint Part­ners, a com­pli­ance soft­ware and con­sult­ing firm.

Al­terra uses HMDA data to draw up some of its busi­ness strate­gies, but Madiedo said lenders should keep in mind that it’s older data.

“It’s go­ing to be much more de­tailed in the fu­ture, and de­pend­ing on the speed at which it is re­leased, it could be more use­ful,” he said. “For now, we use it more to un­der­stand where com­peti­tors are lend­ing in our space.”

Al­terra mines HMDA data with a Com­pli­anceTech tool that an­a­lyzes lenders, bor­row­ers, mar­kets and neigh­bor­hoods and com­pares it to sev­eral other data sources, in- clud­ing the Nationwide Mul­ti­state Li­cens­ing Sys­tem and Registry and the Na­tional As­so­ci­a­tion of His­panic Real Es­tate pro­fes­sion­als, where Madiedo is a for­mer pres­i­dent.

For its go-for­ward view of data, Al­terra works with iEmer­gent, an ad­vi­sory firm that draws up pro­jec­tions that can drill down to de­tails beyond eth­nic group, like in­come level.

Drilling down into spe­cific mar­ket seg­ments and data com­par­isons can iden­tify a lot of new op­por­tu­ni­ties. Lenders can bet­ter see whether they are re­ally reach­ing all cor­ners of the mar­ket when they look at more gran­u­lar data.

Quicken Loans doesn’t tar­get par­tic­u­lar groups ex­clu­sively, but does ex­am­ine sta­tis­tics from var­i­ous parts of the mar­ket to iden­tify larger sub­sets to ad­dress in the ro­tat­ing con­sumer-fac­ing in­for­ma­tional ar­ti­cles it posts on its web­site.

“Like any good lender, we’re try­ing to find out what the mar­ket is and how do we serve that mar­ket,” noted Quicken EVP Bill Ban­field. “The mar­ket is enor­mous and it’s not one-siz­e­fits-all. It’s mil­len­ni­als, first-time home buy­ers, sin­gle women and more.”

Sin­gle home buy­ers rep­re­sent al­most one-quar­ter of the mar­ket, ac­cord­ing to the Na­tional As­so­ci­a­tion of Real­tors. Fur­ther di­vide the seg­ment by gen­der and it be­comes clear that most of those home buy­ers are women, who rep­re­sent a 17% share, com­pared to just 7% for men.

Fur­ther­more, sin­gle women’s share of mort­gages is 19.47%, while sin­gle men’s share is 28.89%, ac­cord­ing to an Ur­ban In­sti­tute anal­y­sis of HMDA and Core­L­ogic data. Sin­gle women also on av­er­age paid 0.02% more for loans, even though their de­fault rate is 0.06% lower than men’s.

Sin­gle women as a group have low- er av­er­age in­comes than men, which could be a fac­tor in this dis­pro­por­tion­ate lend­ing and pric­ing. That also can be said of many un­der­served bor­rower groups as a whole, so af­ford­abil­ity is a key chal­lenge in reach­ing many un­der­served bor­row­ers.

But lenders who make as­sump­tions about a bor­rower’s in­come based on a group he or she be­longs to can un­der­mine their own out­reach ef­forts and pos­si­bly cross the line into be­ing dis­crim­i­na­tory.

For ex­am­ple, while African-Amer­i­can in­comes are lower on av­er­age, their wages in higher in­come brack­ets are grow­ing faster than other groups.

Over a re­cent eight-year pe­riod, African-Amer­i­cans in the $200,000plus in­come bracket saw their in­comes grow 138%. By com­par­i­son, in­comes in the U.S. mar­ket as a whole grew just 74%, Messerli noted, ref­er­enc­ing a Nielsen study.

While Messerli typ­i­cally starts introducing bor­row­ers to new bor­rower seg­ments by help­ing them run a data anal­y­sis they need to fol­low up it up with more qual­i­ta­tive steps to ac­tu­ally reach the un­der­served pop­u­la­tions iden­ti­fied by sta­tis­ti­cal anal­y­sis.

For ex­am­ple: If a lender is work­ing with lim­ited English pro­fi­ciency bor­row­ers, a group that con­sti­tutes 9% of the U.S. pop­u­la­tion, or over 25 mil­lion peo­ple, they might also be work­ing with a trans­la­tor.

Some loan of­fi­cers might focus more on the trans­la­tor than the bor­rower in those cases, but Messerli learned as a so­cial worker work­ing with im­mi­grant groups that the per­son be­ing trans­lated wants the focus to be on them.

If lenders are con­sis­tent with their ef­forts, strate­gies like cul­tural sen­si­tiv­ity train­ing, hir­ing and other com­mu­nity in­volve­ment can help de­liver a re­turn on in­vest­ment from their out­reach in as lit­tle as six months, Messerli said.


While it’s easy for mort­gage ex­ec­u­tives to get bogged down with dayto-day obli­ga­tions in­side their businesses, it’s im­por­tant to main­tain per­spec­tive on the world out­side those four walls.

If ex­ec­u­tives are them­selves mem­bers of an un­der­served group it goes a long way to­ward reach­ing that group as a lender and an em­ployer, ac­cord­ing to Patty Arvielo, pres­i­dent of New Amer­i­can Fund­ing.

“I’m a woman at a large mort­gage com­pany and I hap­pen to be Latina,” she said, adding that she cred­its ef­forts she be­gan five years ago to be­come more ac­tive in the Latino com­mu­nity and be more in­volved with men­tor­ing em­ploy­ees for the makeup of the com­pany’s 58% fe­male, 43% mi­nor­ity em­ployee base.

She heads the com­pany with her hus­band, Rick, and said she’s found it help­ful to have lead­ers of both gen­ders so all em­ploy­ees have a C-suite role model to look to.

“We’re al­ways look­ing for bet­ter sources of data be­cause house­hold mi­gra­tion is mov­ing at a faster rate than some of the data points.”

— Ja­son Madiedo, pres­i­dent, Al­terra Group

Some­times there is an un­der­served bor­rower need that ex­ists, but very lit­tle data avail­able to point to it. That’s when go­ing out into the com­mu­nity or draw­ing on ob­ser­va­tions by lo­cal branches and ex­ec­u­tives can come in.

Rick Davis, a se­nior vice pres­i­dent at Fi­delity Bank in West Des Moines, Iowa, first rec­og­nized there was a bor­rower need that wasn’t be­ing filled when his fa­ther got older and be­gan hav­ing health and ac­ces­si­bil­ity needs that his hous­ing didn’t ad­dress.

Davis be­gan to no­tice it was an is­sue for the larger com­mu­nity around him, which in­cluded a siz­able seg­ment of the pop­u­la­tion that was older and in some cases, had a mil­i­tary ser­vice back­ground that sta­tis­ti­cally makes dis­abil­ity more likely.

He dis­cussed the is­sues with builders he knew in his work orig­i­nat­ing loans for a bank that spe­cial­ized in new con­struc­tion and found sin­gle-fam­ily de­tached homes are rarely, if ever, built with such needs in mind, ex­cept pos­si­bly as cus­tom con­struc­tion.

Even­tu­ally, with the bank’s per­mis­sion, he put his own money into an ex­per­i­ment where model homes are built with stan­dard fea­tures for the ag­ing and dis­abled. The homes are all sin­gle-story and in­clude walkin bath­tubs, with op­tions that can be cus­tom­ized to meet in­di­vid­ual needs from there.

More typ­i­cally these fea­tures get in­tro­duced through re­mod­el­ing, but whether that’s the best route of­ten de­pends on the house, Davis said.

The con­cept makes sense for Iowa and the coun­try over­all. In both cases, the 65 and older de­mo­graphic is pro­jected to rep­re­sent roughly 20% of its pop­u­la­tion by 2050, ac­cord­ing to cen­sus data.

He doesn’t see his par­tic­u­lar in­vest­ment as a big mon­ey­maker, but he hopes it will cre­ate a mar­ket that could build greater vol­ume for lenders and builders. If builders can sup­ply the homes, lenders can ap­ply their ex­per­tise in help­ing se­nior bor­row­ers get con­struc­tion loans, re­ha­bil­i­ta­tion loans, or pos­si­bly re­verse mort­gages.

“My goal is to break even. If I don’t make a nickel, but some­body who can’t take a shower be­cause they can’t get up the stairs now can and they’re happy, that’s good,” said Davis. “But the guys mak­ing mort­gages work­ing with a builder they trust could get some­thing done and make a dif­fer­ence in their com­mu­nity.”

There aren’t read­ily avail­able sta­tis­tics on the num­ber of houses pre­built with such fea­tures or builders who make them, but there is data to sup­port gen­eral in­ter­est in build­ing sin­gle-fam­ily de­tached homes for older Amer­i­cans and anec­do­tal ex­am­ples of builders, like Stan­ton Homes in North Carolina, that ad­ver­tise cus­tom ac­ces­si­bil­ity fea­tures.

Se­nior cit­i­zen home­own­er­ship is higher than the na­tional av­er­age of 63.7%, at 75.4% for ages 55-64 and 78% for age 65 and up, ac­cord­ing to Cen­sus data. Also, se­niors tend to age in place, which locks up a lot of ex­ist­ing home in­ven­tory. But that could change if se­niors had new sin­gle-fam­ily homes avail­able that ad­dress qual­ity of life is­sues.

“You could help the neigh­bor­hood that they’re leav­ing,” said Davis. “Peo­ple do the most to their house when they sell it and when they buy it. It could be a win for ev­ery­body.”

Al­though it’s un­clear to what ex­tent the con­cept of pre­built, de­tached ac­ces­si­bil­ity homes for se­niors has be­come a re­al­ity, it’s an idea that’s been around for years, said Paul Em­rath, vice pres­i­dent for sur­vey and hous­ing pol­icy re­search at the Na­tional As­so­ci­a­tion of Home Builders.

Sin­gle-story struc­tures with wider hall­ways for ac­cess in­tended for se­niors are not un­heard of, but sur­veys sug­gest things like walk-in bath­tubs have less uni­ver­sal ap­peal to older Amer­i­cans.

“The is­sue is some peo­ple don’t want to ad­mit that they’re go­ing to have health is­sues,” Em­rath said.


Some­times reach­ing un­der­served bor­row­ers takes ex­per­i­ment­ing with changes to the mort­gage fi­nance sys­tem. And with the gov­ern­ment-spon­sored en­ter­prises dom­i­nat­ing the sec­ondary mar­ket, that means get­ting Fan­nie Mae or Fred­die Mac, along with their con­ser­va­tor, on board.

For­tu­nately, the GSEs en­cour­age this, par­tic­u­larly when it comes to low­er­ing down pay­ment hur­dles.

“We know there are go­ing to be shifts in bor­row­ers’ needs in the fu­ture and we are go­ing to stage pi­lots that are small scale in many cases to ad­dress that,” said Mike Daw­son, vice pres­i­dent of af­ford­able lend­ing strat­egy and pol­icy at Fred­die Mac.

For any lender that goes this route, the ex­per­i­men­tal na­ture of the pi­lots is good to keep in mind. They may or may not fly, and even good ideas may end up not work­ing be­cause they’re in­ef­fec­tive over the long term or at any de­gree of scale. And the pi­lots that do work will likely get shared with the broader mar­ket, elim­i­nat­ing any op­por­tu­nity for an exclusive pro­gram.

For ex­am­ple, af­ter pi­lot­ing a cashout re­fi­nance loan for home­own­ers to pay off stu­dent loans with So­cial Fi­nance, Fan­nie Mae rolled out the prod­uct to all of its lender part­ners.

Some pi­lots are mod­eled af­ter ex­ist­ing GSE prod­ucts, like part­ner­ships be­tween Wells Fargo and Fan­nie and Bank of Amer­ica and Fred­die to offer 3% down pay­ment loans with more le­nient el­i­gi­bil­ity re­quire­ments than the orig­i­nal HomeReady and Home Pos­si­ble 3% down pro­grams.

Other pi­lots bring a new ap­proach to home fi­nance, like CMG Fi­nan­cial’s pro­gram that pro­vides a crowd­fund­ing plat­form for bor­row­ers to raise the money for a down pay­ment.

The fur­ther lenders can knock down the down pay­ment bar­rier with­out jeop­ar­diz­ing bor­row­ers’ abil­ity to re­pay and loan per­for­mance, the more con­sumers with af­ford­abil­ity chal­lenges they are likely to reach.

More than two-thirds of renters in a re­cent Zil­low sur­vey said saving for a down pay­ment is a top home­own­er­ship ob­sta­cle. If that fig­ure holds true across the 45 mil­lion U.S. house­holds that the Pew Re­search Cen­ter es­ti­mates rent their homes, down pay­ments could be a chal­lenge for more than 30 mil­lion would-be home­own­ers.

The GSE pi­lots are also in­spir­ing ex­per­i­ments be­tween lenders and pri­vate in­vestors. For ex­am­ple, Guild Mort­gage and oth­ers are test­ing a 1% down pay­ment mort­gage, where the lender pro­vides a 2% grant sub­sidy to cre­ate a 3% down pay­ment loan. While Fred­die pro­hib­ited the prac­tice for loans it buys, the Guild pro­gram is mod­eled af­ter Fan­nie’s HomeReady pro­gram and the loans are sold to pri­vate in­vestors. The idea stemmed at least in part from lo­cal in­sights.

“We heard from re­tail loan of­fi­cers in those ar­eas where it was an is­sue. That’s a large fac­tor in our de­ci­sions. We de­velop unique so­lu­tions for ge­o­graphic prob­lems, but in this case it made sense to do it na­tion­ally,” said David Bat­tany, an ex­ec­u­tive vice pres­i­dent at Guild.

Sep­a­rately, Guild is also de­vel­op­ing a shared equity pro­gram with the GSEs. While it’s a promis­ing op­por­tu­nity, Bat­tany ad­vises lenders not to think a pi­lot is easy to par­tic­i­pate in.

“Some peo­ple think Fan­nie and Fred­die throw a pi­lot in your lap, but they tend to look for the lender to bring the idea to them,” he said. “We spent a year plus re­search­ing it with mul­ti­ple in­vestors. They’re look­ing for peo­ple who have done the work. It could be shut down or mod­i­fied.”

“Some peo­ple think Fan­nie and Fred­die throw a pi­lot in your lap, but they tend to look for the lender to bring the idea to them.”

— David Bat­tany, ex­ec­u­tive vice pres­i­dent, Guild Mort­gage


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