The Next Wave of Borrowers Is Not Necessarily the Millennials

There has been a lot of chatter in the mortgage industry about millennials being the next great segment of the purchase market, and absolutely they are going to be a big part of the borrower pool very soon. However, if the industry has evolved to the point where we are being smart about segmenting our customers in order to deliver relevant products and services, we need to first realize there is a much bigger demographic shift ahead.

While this growing segment is not getting as much attention from the mortgage industry as millennials, the diversity of the U.S. population is at the proverbial tipping point. According to a recent USA Today statistic, in all likelihood, in 50 years, "there will be less than a 1-in-3 chance that the next person you meet will share your race or ethnicity, whatever it is: white, black, American Indian, Asian, Native Hawaiian or Hispanic." What the mortgage industry may be doing today to prepare for the predicted millennial purchase boom is nothing compared to what it should be doing to anticipate the most phenomenally diverse borrower pool that is poised to dive into homeownership.  

There are other statistics that reflect the growing change in ethnicity of potential homeowners. For the first time, public schools around the country began this school year with non-Hispanic, white students in the minority. A Diversity Index published by USA Today in October showed the U.S. at 55 (on a scale of 1 to 100) in 2010 and is projected to top 70 by 2060. Bringing that home, Fannie Mae released a report in August 2014 that showed a rise in home ownership among immigrants between 2000 and 2010. That's right: a period of growth during one of the most chaotic housing cycles on the books. Even the data behind the statistics, including the Federal Housing Finance Agency's National Survey of Mortgage Borrowers, are being collected in two languages: English and Spanish.

In order to remain relevant and deliver services to our changing communities, lenders need to look closely at these and other demographic trends in and around their shops to better understand how diversity might have an effect on their future business. For example, according to the Center for Rural Affairs, the Hispanic population is expected to triple in Nebraska by 2050, effectively becoming one-quarter of the state’s population. With such statistics in mind, having bilingual loan officers may be a prudent hiring strategy.

When we say bi-lingual, the assumption is usually that Spanish is the second language, but that may not be the case for your community; in fact, Asians are actually the fastest growing ethnic group in the U.S., according to Pew Research Center (using U.S. Census data). This means diversity training for mortgage bankers should begin to include elements designed to help loan officers develop culturally-respectful relationships with any and all ethnic borrowers.

Geography also plays a role, which we see reflected in Lenders One member volume. Originators serving markets that are considered an immigration "hot spot" are finding it valuable to seek approval with a secondary lender offering a foreign national product. Similarly, if your growth plans take you beyond suburbia, considering the addition of the USDA Rural Development product may enable you to serve a new borrower group. Or, your geographic location may indicate that a totally different niche opportunity, such as offering HUD Section 184 loans to Native Americans, is a smart way to reach out to a new client base in states where the product is relevant.

For community lenders, studying and understanding the projected changes to your potential borrower pool during the next 10 years and noting who they are and where they are choosing to live represents a significant, but very worthwhile investment. Stay attuned to industries and institutions in your area and demographics of the people they attract/recruit. You will need the basic four P's of marketing, (product, place, price and promotion) plus the right talent and training to start building these relationships. It will be important for you to start today if you want to appeal to these markets in the future.

Kristi Kovalak is the director of marketing at the Lenders One Mortgage Cooperative and has more than 20 years of experience in marketing and communications. She is responsible for the marketing strategies at St. Louis-based Lenders One, developing marketing programs for Lenders One members and managing the member marketing services team.