Originators are always looking for unexplored avenues to potential borrowers, whether that be new referral partners or digging deep into their existing database. But there entire communities of qualified candidates who are left out of the mortgage conversation.
These are communities of color, and actively marketing to the people in these communities can really increase your client base.
The reasons that black and Hispanic households have fewer mortgages than white households are multifaceted, to be sure. According to the Pew Research Center analysis of data gathered under the federal Home Mortgage Disclosure Act, lenders say that the most frequently cited reason for mortgage rejections for Hispanic clients (as well as whites and Asians) is a higher-than-acceptable debt-to-income ratio, while the most frequently cited reason for mortgage rejection among black clients was poor credit history. And when black and Hispanic homeowners do obtain mortgages, they tend to pay higher interest rates; a study by economists Patrick Bayer, Fernando Ferreira, and Stephen L. Ross, finds that even after controlling for DTI ratios, credit reports, and other risk factors, Hispanic Americans are 78% more likely and black Americans are 105% more likely to be given a high-cost mortgage.
The other side of the coin, however, is that’s that originators aren’t always reaching these communities to convert people with the ability to repay a mortgage into homeowners. There’s a lot of business to be had, but those who do want to get into these communities have to make a real effort to change their existing marketing strategy.
“It’s not enough to speak the language. You can’t just translate a flyer and pass it out in the community,” said Eva Melgarejo, Director of Multicultural Affairs at New American Funding. “You have to be able to understand the key [issues] of that demographic, what are their pain points, and what solutions are you presenting.”
Depending on the community, the presentation of the solutions may look different and engage people in different communities in different ways. This may mean displaying an infographic, sharing a video, facilitating an informal roundtable discussion at a local event, or hosting a credit repair workshop. Whatever the outreach, the goal should remain the same: to address the specific assistance needed within that community to get people ready to purchase a home.
Engagement efforts shouldn’t end there. Gwen Garnett is the program director for the Center for Financial Advancement, which was launched in September 2017 as part of HomeFree USA, an organization that helps improve people’s lives and financial position through homeownership and improved financial capability. A huge part of the success of HomeFree’s clients is due to housing counseling, which helps homeowners manage their asset and keep their home once they’ve gotten the mortgage in the event that they fall behind on payments.
Garnett says that right now, originators are measured by the loans that they close, but they also need to be supported by their companies and help them ensure that the loans they close remain healthy.
“Look at your potential first-time home buyer. What does the data tell you, where are first-time homebuyers coming from? And are you equipped with the current population that you have to go after that business?” Garnett asks. “At the end of the day, it comes back to results. And so if you’re not [equipped], what’s your strategy for going after that business? How do you make that happen? And it’s not a silver bullet.”
She suggests that originators look for results-oriented partners that are already have processes and programs in place in communities where you want to be. Partners like HomeFree, with more than 20 years of experience guiding people of color into homes and counseling them through difficult times with zero foreclosures, even through the 2008 financial crisis.
Using a combination of short-term and long-term efforts to reach people who are new to the mortgage world can pay off many years down the line. Strategies such as advising clients on the best way to manage their asset after closing is even more important within communities of color because many of these homeowners will be the first in their family to own a home and will have no prior experience or support to draw upon, such as advice from friends and family. Originators also need to think about other things that can be done to serve the community as well as bring in business.
“You’re going to go out there and you’re not going to sell your company; you need to educate so that you can help them bridge that gap and really get into home ownership. Because a lot of the cases, they’re not going to be ready to buy a home in the next 30 days. They may not know that cosigning for their son’s car was not the right thing to do because now it affects their DTI and now they don’t qualify,” Melgarejo said of people in the Latino community in particular. “Educating them on what the process is in this country in terms of paper trail and how vital it is for a mortgage loan. And holding their hand . . . They’re a very loyal community, and they trust, but they need to see you, they need to feel you, they need to be able to talk to you. So being involved in their community and also recruiting from those communities so they can go back and serve their own is key to the entire strategy of marketing to the Latino community.”
In 2016, the Hispanic Wealth Project™ and the National Association of Hispanic Real Estate Professionals® (NAHREP®) published the “State of Hispanic Homeownership Report”, and in that report, projections are that Hispanics will account for 52% of all new homeowners in the U.S. between 2010 and 2030. This growth goes hand in hand with the fact that much of the growing Hispanic population is entering into the median homebuying age, which is 32-34 years old. Gary Acosta, president and co-founder of NAHREP, also points out that the vast majority of young Hispanics (aka Hispennials) are English-dominant, removing the language barrier from the process as it may have been in the past, and making it much easier for originators to seize the opportunity.
“This is not something that you have to do; this is where all the growth is, this is where the opportunity is, this is where the profit is,” Acosta said. “The mortgage originator community is largely depending on the real estate community to bring these homebuyers into the market. But there’s no question there are people now coming in through the mortgage side first, and so I think it does go both ways. But the effort has to be collective.”
Originators also have to be aware of cultural context; while the lending requirements and the products are the same for one borrower versus the next, there are entirely different connotations around homeownership that shapes the advice that originators give the potential client. If those differences aren’t understood, the business opportunity will be lost. For Latinos, for example, owning a home is not seen as an investment.
“Owning a home is a legacy. It’s where you’re going to die, basically, and it’s what you’re going to have left to the next generation. Your children will own that home,” said Melgarejo, explaining why multi-generational home purchases are prominent in the Latino community. “So it’s not a matter of, are they going to buy homes or not, it’s matter of maturing into that age where they’re willing and able to take that step of, ‘okay, let’s own a home together.’”
Some Asian communities also have a multigenerational approach to homeownership, and because many cultures don’t look at buying a home as a financial investment, or have had access to home ownership, they’re they may not typically have been afforded the avenue of homeownership as a way to build generational wealth. This is certainly true in black communities across the country.
Aside from educating communities on the benefits of homeownership as well as credit repair programs and other creative avenues that can be used to transform more people of color into homeowners, it’s easy for originators to see the demographic trends and the areas that hold tremendous potential. It’s not necessarily altruistic; it’s just good business.
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