GWEN MUSE-EVANS
‘Huge misperceptions’
Although business in the mortgage industry is the antithesis of the rest of the recession-soaked economy, attendees at a recent conference were encouraged to plan for the future drought.
The New England Mortgage Banking Conference, held last week in Newport, R.I., drew nearly 2,000 people. Although the atmosphere was clearly more convivial and celebratory than last year’s – which came on the heels of the Sept. 11 terrorist attacks – the message driven home by two of the sessions was that mortgage lenders had best tap unserved markets now before the refinancing wave dissipates on their shores.
The “Hot Topic” workshop run by representatives from Fannie Mae and Freddie Mac focused on the minority and immigrant borrower, both of which are set for record growth in the years to come.
Community outreach will become increasingly important because of changing borrower demographics and increasing technology, said Randal J. Krout, vice president of sales for Freddie Mac. In recognition of that, Freddie Mac has launched a new division focused on community lending which targets the smaller mortgage companies that are in the best position to aim for those growth areas. “In the future, we believe your reach into the community will be more important than ever,” he said.
Immigrants, minorities and low-income borrowers will flood the market in the next 10 years. Currently there are 11.6 million foreign-born residents in the United States; of those, 49 percent are homeowners.
In Boston about one person in eight is an immigrant, said Eric S. Belsky, executive director of Harvard’s Joint Center for Housing Studies, who spoke about the non-traditional borrower. Another motivator for capturing the immigrant market is that immigrants tend to have larger down payments. Thirty-nine percent of Asian immigrants put 20 percent or more as a down payment on a home purchase vs. only 25 percent of whites, said Belsky. “Not only do they [immigrants] put more money down – they tend to try to buy more house [for the money,]” said Belsky.
Up until now those markets have been “easy pickings” for subprime lenders because conventional lenders haven’t paid attention to the fact that up to 35 percent of these borrowers are prime – not A-, but A – and are still subjected to subprime rates. Those prime borrowers accept subprime rates because of a lack of education, misperceptions about credit and cultural factors as well. Consider, said Belsky, that in some countries loans may come with rates as high as 30 percent, so if a subprime lender offers a rate of 13 percent, it might sound very good to an immigrant not familiar with the current rates.
Besides immigrants, minorities are also another facet that should be explored. “Over the last six years, minorities have accounted for 42 percent of the growth in homeownership,” said Krout. This year it’s predicted to reach 60 percent. But minority homeownership still lags behind whites.
While there is still discrimination against these types of homeowners, there is also a lack of education, said Gwen Muse-Evans, vice president of marketing at Fannie Mae. “We’ve got to get the word out because there are still huge misperceptions about what it takes to buy a home,” she said.
‘Practice Diversity’
For minorities and immigrants, traditional methods of community outreach must be re-examined and contoured to cultural nuances not typically recognized in the business world, Muse-Evans said. They don’t use traditional banks, and banks have not traditionally gone into their neighborhoods. Also, they tend to use their relationships more to find out about products and services. Therefore, she noted, to expand outreach, consider improving relationships with those who are already highly regarded in those communities – Realtors, for instance.
Belsky backed his talk with strong numbers from Harvard studies showing that minority lending for home-purchase loans was the strongest growth sector since 1993. The numbers were highest among Hispanics, followed by blacks and other minorities. Whites have actually declined over the past two years.
“Not only is this a big market, it’s one of the fastest growing,” said Belsky. Low-income minorities accounted for a 50 percent increase in home lending from 1993 to 2000 in the Boston metropolitan statistical area, while among low-income whites the figure decreased. In Springfield, low-income minority homebuyers increased 250 percent and again, whites decreased.
The trend is the same all over New England. In Connecticut, for example, 100 percent growth in minority low-income lending was seen in Hartford and over 150 percent growth was seen in New Haven.
According to Belsky, although those areas are growing, the conventional market is not; in fact, it’s shrinking. Only 45 percent of minority low-income borrowers seek out conventional prime loans as opposed to 85 percent of whites. Instead, they’re getting loans from the subprime market (18 percent) and government loans (36 percent).
The problem remains, said Belsky, of how to reach the market in question. The loans tend to be smaller so mortgage companies that want to concentrate on that area have to be “ruthless” with their efficiency, he said.
He added that although the subprime lenders serve that market, they don’t traditionally do it very well. Therefore, outreach by mortgage lenders, if done the right way, will be favorably received.
“The way you reach out to [this market] is, try to practice diversity in your hiring,” said Belsky.
Additionally, lenders should leverage a whole network of groups that tend to be in those neighborhoods, from church groups to civic groups, and get them to do a lot of the prescreening for you, he said. They want to better their neighborhoods, and often that translates to more homeownership.
Muse-Evans said although the industry has been riding high for nearly two years because of low interest rates, it’s going to end sometime. “We should start to prepare ourselves for the shift,” she said, and to look for new opportunities. The minority, low-income and immigrant markets are those opportunities.
