The shift in America's racial and ethnic demographics and its potential effects on residential mortgage lending was the subject of ‘Products and Opportunities for Emerging and Expanding Mortgage Markets,’ a session at last month's Mortgage Bankers Association's Annual Convention & Expo in Boston.
For Jennifer Whip, vice president for community and multicultural lending at Fannie Mae, the nonwhite borrowers represent extraordinary business potential for the near future.
‘We have expectations of incredible growth, not only in the number of new households but in the percentage of households that will be for minorities and new Americans,’ she said. ‘The figure there is 68 percent.’
Whip added that population shifts have significantly changed the hue of the mortgage market. ‘Homeownership over the past 10 years among minorities has grown substantially,’ she said. ‘People of color accounted for nearly 40 percent of the growth in homeownership for the period 1994 to 1999, and will represent 30 percent of total households by 2010. The populations for Hispanics, African Americans and Asian Americans are expected to grow, adding 3 million households over the next few years.’
However, Whip noted these changes would only affect distinctive regions of the country.
‘With the African American population, we have concentration in the South, Mid-Atlantic states and Southern California,’ she observed. ‘In the Hispanic community, it is concentrated in just two states today, California and Texas. Six states with the largest Hispanic population – California, Texas, Florida, New York, Arizona and Illinois – contain 75 percent of the U.S. Hispanics. For the Asian American market, half of the Asian population is concentrated in just three states: California, New York and Hawaii. The 10 states with the largest Asian populations – California, New York, Hawaii, Texas, New Jersey, Illinois, Washington, Florida, Virginia and Massachusetts – contain 75 percent of the U.S. Asian market.’
Secondary Marketing Executive Identifying and exploring the multicultural market opportunities was addressed during this session by Maurice Jourdain-Earl, president of CLC Compliance Technologies Inc. in Washington, D.C. For Jourdain-Earl, the use of data-driven strategies was paramount in achieving bottom line success.
‘It is important to establish realistic goals and benchmarks for emerging market loan production,’ he said. ‘It is cost-effective for marketing and measuring results.’
The intelligent use of data, explained Jourdain-Earl, could help lenders identify current locations to pursue.
‘One thing that is vitally important is to give your production staff, whether they are loan officers or brokers, some granular information to pinpoint neighborhoods,’ he urged. ‘Don't just stay at 20,000 feet above sea level – let's get it down by combining HMDA data with ZIP code information, where you can begin to create maps to show where production activities are – then give your team tools to help them zoom in on where they should be focusing their energies.’
Indy Mac In addition to addressing well-recognized communities, he also noted data-driven strategies could help to identify hitherto-overlooked areas with growing minority communities. ‘You can identify areas of where exceptional growth opportunities are, and also identify areas of under-performance. If you've got limited resources, why should you continue to beat your head against the wall and go after markets that are not going to produce what you need to have? You can also identify areas with high potential customer growth and low competitive saturation. In other words, go where your competitors are not and do something different. Because if you thought the competition was fierce in the past, it's going to get even more fierce going forward.’
Jourdain-Earl warned that the marketing outreach needs to be refined. The easiest mistake to make, he noted, was miscommunication with these communities.
‘I can't tell you how many lenders make the erroneous assumption of what the characteristics are about a particular group and come up with thousands of dollars – sometimes hundreds of thousands of dollars in a marketing strategy – that misses the mark simply because it didn't understand the customers,’ he said.
But if lenders can seek an opportunity with the multicultural market, Whip noted that lenders may wish to proceed with caution – considering that previous outreach to nonwhite borrowers did not pan out successfully.
‘The multicultural markets were hardest hit among the subprime borrowers,’ she lamented. ‘The Center for Responsible Lending said that 52 percent of the loans made to African Americans in 2005 were subprime, and 40 percent made to Latinos were subprime. That's over twice as high as the 19 percent of whites with subprime loans.’