George Baker of Talk’uments: In Spite of Storm Clouds, Genuine Opportunities Emerging for Lenders

George H. Baker is CEO and Founder of Talk’uments LLC, Washington, D.C.. Directly out of college, he began his career by selling APR calculation software to the mortgage industry. Intrigued by the trade, he went on to become a top loan originator, mortgage broker and mortgage banker. His 33 years of mortgage experience spans all facets of mortgage lending and is anchored by a maturity derived from detailed involvement with loan production. Reach him at gbaker@talkuments.com.

The mortgage headlines couldn’t be any clearer lately.  Interest rates are rising, and won’t be returning to the lows seen in 2020 – 2021 any time soon. The refinance-dominated market is gone, and while we anticipate a historically strong purchase market in the coming months, overall origination volume will not be close to what it was in 2021.

But while the short-term outlook for the mortgage industry might not be rosy, there is plenty of reason for optimism, starting with that purchase market. Barring the unforeseen, MBA forecasts that the record purchase volume expected in 2022 will increase again (modestly) in 2023 and again in 2024. MBA also forecasts that refinances may see a modest rebound starting in 2024. In other words, the currently plunging mortgage market will stabilize and even begin to rebound in the next two years. In large part, that will be based upon purchase mortgages.

What happens next is fairly predictable. Although we’ll likely see significant contraction among market participants, the survivors will eventually turn their attention to the purchase market. The market will be competitive, so we will likely see some combination of a slight relaxation of underwriting standards, the increased marketing of alternative or non-QM products and, above all, an intensive search for “emerging markets.” None of this is news—we saw all of it just before and during the Great Recession.

An Emerging Market

One of the largest emerging markets is non-English speaking, or Limited English Proficiency (LEP) Americans, particularly Hispanic Americans. The numbers easily bear out this truth. In 2020, the Hispanic population had reached 62.1 million. That was a 23 percent increase over Hispanic population growth in the previous decade, and easily outpaced a total population growth in the United States of seven percent.  The U.S. Census Bureau projects the Hispanic population in the United States to be 68.8M by 2025 and grow to 74.8M by 2030, then reaching 111 million by 2060. It would be an understatement to suggest the potential there for new mortgages is significant.

And yet, this wouldn’t be the first time mortgage lenders attempted to tap this growing market. We saw a trend in this direction just before the meltdown and Great Recession of 2007. However, by many accounts, the results didn’t always match the marketing budgets allotted to penetrate this market and the strategies tended to begin and end at the point of application.

Regardless, all of this was washed away in the board rooms and headlines with the default and foreclosure crisis and several lean years of overall origination volume. That era, in turn, was followed by the seemingly endless refinance boom, which put an end to the perceived need for “unorthodox” marketing strategies. It’s not a stretch to believe that it is only a matter of time before lenders eye the Hispanic American mortgage market again. But will they learn from previous mistakes in their attempt to win that market over?

Understand the Market Before Attempting to Craft a Message

The last time lenders more actively attempted to penetrate the emerging Hispanic market on a larger scale, the emphasis (at least, at the national level) was on Spanish marketing materials and the increased deployment of multi-lingual loan officers or front line specialists. Far too often, however, the effort ended there. As confusing as the mortgage journey can be for English speakers when confronted with English forms, contracts and informational materials, it’s not hard to imagine how much more difficult that journey becomes for non-English speakers. As a result, some of the emerging market “campaigns” became more punchline than success story.

The lesson is clear. Lenders seeking to win over a Spanish speaking market need to do more than retain a bilingual LO or two. Successfully winning over any market requires an understanding of the specific market’s needs. The Hispanic community, for example, is not monolithic. Spanish speakers in Florida may have very different needs than those in Texas, and those differences likely aren’t all culturally-motivated. Simply translating existing marketing materials into Spanish isn’t enough to win over the market, since it’s probable that the existing materials were crafted with a very different market in mind in the first place.  Now is the time to make the investment in market research—extensive and deep market research—and not just at a national level. If outside expertise and consultation is necessary, particularly for compliance, it could be worth the price, if the result is a marketing strategy that resonates with the emerging market.

In the course of that research and planning, lenders need to plan for the long term as well. Tapping into the emerging Hispanic market is not just a temporary “fix” for revenue until refinance comes back in two or three years (if that really is the case). The Urban Institute’s numbers suggest that between 2020-2040, all net household growth will be from households of color, particularly Hispanic households. So why wouldn’t the savvy lender prepare not only to penetrate the market, but to grow its presence there and share via referral and repeat business? That would include applying the results of the aforementioned research to not only marketing materials, product mix, service resources but technology as well.

Commit Resources to Planning and Execution

As is the case with any business strategy, it’s critical to forge a fact or research-based plan. It is just as important to execute that strategy well. In the case of reaching the growing Hispanic market, that means, in part, that the entire borrowing process must be simplified for the Spanish speaker. That demands much more than a Spanish marketing email and follow-up call from a bi-lingual LO. Instead, it requires an entire, well-crafted Spanish language experience, including educational materials and customer support beyond the point of application. All the way through the process, in fact, including website, explanations of application and closing documents, loan products, the LE and CD costs, the closing process and the post-close follow-marketing.  Perhaps most importantly, it includes the in-process customer service—even after the application has been finalized. In short, the more of the mortgage journey that can be provided in the primary language of the borrower, the more comfortable the borrower…thus, decreased fall out and increased referral rates.

As is the case with English speaking clients, the lender doesn’t control the entire experience, either. Borrowers deal with REALTORS, appraisers, mortgage brokers and title agencies. Don’t forget that a third-party service provider (such as the title agency or closing company) that can consistently provide multi-lingual support resources should have a leg up on other vendors if the lender is truly committed to a Spanish-speaking market strategy.

Do not underestimate the importance of continuous training. Assuming a lender has done adequate research, that needs to be shared with any and all who will be working with the targeted Spanish speaking borrower. And not just once. Regular updates, consistent training and significant oversight and management will be required, not only to ensure the market strategy is being carried out, but for compliance reasons as well. (To be candid, this is something every lender should already have in place for the latter reason. It would simply need to be amended and aligned with the market strategy.)

A lender’s staffing strategy will be important to any emerging market approach as well. A potential borrower, likely already wary of the complex mortgage process as well as any potential language barriers, is more likely to work with a company that has proven its engagement with that borrower’s community via a robust and consistent D&I policy. That, in addition to creating a process that eliminates the extra confusion or mystery brought on by a Limited English Proficiency (LEP) consumer anxious to work with an industry that tends to be English-only, can go a long way to fostering community referral or even return business.

By all accounts, real change is coming to the mortgage industry. Adaptation is always the best business strategy for dealing with change. The American market is changing as well. Accordingly, an emerging market philosophy, although it will require a real investment of time and resources and require careful execution, could well serve not only as a short term antidote to disruption, but a long term pathway to success and market leadership.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)