Ah, the dog days of summer. This is the time when you head to the beach with a folded up copy of National Mortgage News and enjoy yourself. Well, at least I do. But then the beach is not far from my house.
I'm a long time reader of Mark Fogarty's writing. His columns at the beginning of each issue of National Mortgage News always cut through the issues to the key point. I recently read one of Mark's columns on the NMN website that was a perfect case in point. And I'm not just writing this because Mark likes feedback, as any good columnist does (you know how to comment on this column, don’t you?). His point was really good and it goes hand-in-hand with some data we’ve uncovered here at Stratmor. Let me explain.
In his recent column, Fogarty pointed out that minorities are expected to make up nearly half of the first-time homebuyer market in the next ten years. Nothing wrong with that. The problem is that mortgage lending to minorities has dropped by 360 basis points over the last 10 years, 25% more than for whites. This is a big part of the mortgage market of the future and they're not buying (or we're not selling to them). As a side note, another important part of the market will be made up of millennials. I'll tell you why that’s a problem, too, in a future column.
So, the fact that minorities should be our target market, but they’re not taking out loans, led Fogarty to conclude that unless mortgage lenders want to stay boutique lenders at the current low level of loan volume, they are going to have to lower credit standards to do so. As you might expect, this got a lot of response from the industry.
As always, his arguments were well thought out and, whether you agree with his solution or not, he has identified a real problem. Experience in our industry dictates that if we’re unwilling or unable to solve problems for ourselves, the government will happily step in and create a bunch more...or something like that. Anyway, falling homeownership among minorities is a problem for our country and for lenders. It also completely obliterates a key advantage a lender can have over its competitors.
In our study of customer satisfaction at Stratmor, we've spent a lot of time trying to get to the bottom of not only what makes customers feel satisfied, or not, but also which of these things is powerful enough to drive them to take action that will either help or hurt a lender's business. It’s nice to know that meeting a borrower’s expectations up front will increase borrower satisfaction on the back end, but it's better to know that providing a written checklist upfront and then maintaining it will actually get more borrowers to take action that will bring the lender more business. This may include spreading the good news on social media or referring a friend or family member.
In our studies of customer satisfaction, we have found that minority borrowers score lenders higher on customer satisfaction than white borrowers. Minority borrowers, as a group, are more likely to use the same lender again and more likely to comment about the experience in social media. So, this means that the industry is doing a good job on meeting the expectations of borrowers that close, and that these borrowers will serve as ambassadors for the lender in the future. Very encouraging.
In addition, wealthy borrowers, defined as those who bring home more than $12,500 per month, score lenders lower on the index than borrowers who earn less than this high income. What does this mean for lenders? It means that the high-income borrowers are often harder to please, and harder to make happy, likely due to higher lending standards that they are used to. So, these higher-income borrowers may seem like the holy grail—easier to qualify and close—but they are less likely to be satisfied, and less likely to recommend or comment on social media.
Put simply, it means that lenders are more likely to achieve their customer satisfaction goals by lending to minority borrowers as well as those who earn less money, which unfortunately includes many minorities. If they do satisfy these borrowers, they are more likely to drive behavior that will bring them more business in the future.
It's in our best interests as an industry to find out how to serve these borrowers and to sell them on the virtues of homeownership. Yeah, I said sell. It may be because I come from that side of the business, but in addition to messing with our underwriting criteria, I'd focus on making sure that every borrower in my geographical area knew how badly I wanted their business. And then I'd make sure my team served them so well that we gained all the advantages that these borrowers are more than willing to offer us.
Those lenders who don't do this are very likely to end up exactly as Mark Fogarty predicts, playing niche lender to a shrinking share of borrowers who are more likely to expect more than they get, walk away from the closing table less satisfied and may even fail to offer the lender the repeat business they will need to be successful in the future.
Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience.