Charles Dickens began his landmark novel ‘A Tale of Two Cities’ with the classic words, ‘It was the best of times, it was the worst of times.‘ In today's mortgage banking market, it is easy to assume that the famous Dickensian commentary is only half correct – and not the happy half, either.
But while this may not be the best of times for the industry, business still needs to be conducted, and mortgages need to be originated and securitized. Getting that message out today is one of the greatest marketing challenges faced by the industry.
‘Given the current financial climate, consumers are not feeling all that confident about financial institutions in general,’ says Laura Higgins, director of marketing at Bellco Credit Union in Denver. ‘We've recently seen some major banks virtually disappear overnight – that's not reassuring for consumers.’
But proactively coordinating a promotional marketing campaign at this time might seem counterproductive, given the wide-scale public impression of the financial services industry in general and mortgage lenders in particular. Prof. Charles R. Geisst, professor of finance at Manhattan College in the Bronx, N.Y., believes financial companies have been blanket-coated by the dust from the crisis.
‘All banks are being seen as bad guys,’ says Geisst, glumly.
However, certain sectors of the industry have pinpointed new origination opportunities and are refashioning their sales and marketing strategies accordingly.
Credit union lending
For many lenders in the credit union industry, the current market offers new opportunities. Since the troubles facing other sectors of the financial services industry have not permeated the credit unions, these institutions are finding themselves able to focus anew on mortgage origination.
‘This is still the best opportunity credit unions ever had,’ says Bob Dorsa, president of the American Credit Union Mortgage Association. ‘This can get us in front of the American people.’
Dorsa notes that credit unions have historically not been major players in mortgage banking. He believes the marketing opportunities for reaching out to borrowers in search of first mortgages, refinancing or home equity has never been stronger – and that marketing home loans can build the bottom line and membership base.
‘We tend to preach to the choir and overlook the tremendous reservoir of new blood that could enhance the credit union community,’ he says. ‘Today, 96 percent of existing credit union members obtain mortgage loans elsewhere. If we introduce ourselves to new people, we might fare better in getting a better percentage of overall market share. We need to encourage existing members to take a new look at credit union membership to help with their housing and mortgage needs.’
Higgins at Bellco agrees. ‘The credit union marketing challenge is the same as it has always been: to make the consumer aware of the differences between credit unions and banks, and to help them understand why credit unions offer such a great deal as compared to banks,’ she says. ‘Credit unions are owned by our members, not shareholders, which means they benefit by receiving lower rates on loans and higher yields on deposits – we just give the profits directly back to the members. So, our biggest challenge is making sure they understand that, now more than ever, credit unions are the best deal out there.’
Within the credit union sector is the niche market of community development credit unions (CDCUs), which focus exclusively on affordable housing solutions. Lisa Williams, director of CDCU Mortgage Center LLC, a division of the National Federation of Community Development Credit Unions, believes the time is right for this niche market to actively promote itself.
‘As credit standards continue to tighten, access to the major secondary mortgage markets, Fannie Mae and Freddie Mac may become more difficult for CDCUs and the communities they serve,’ she says. ‘So credit unions now have a significant opportunity to fill the space where mortgage brokers and subprime lenders once dominated. Credit unions have always focused on relationship marketing and providing financial counseling to members. They have a long-standing reputation as trusted, ethical lenders to people of modest means.’
Furthermore, Williams states it is important for credit unions to promote the fact that they are not in the business of handing off the servicing of mortgages to indifferent third parties. ‘One advantage that credit unions have historically had in their mortgage lending operations, regardless of who they sell their loans to, is that they retain their servicing,’ she observes. ‘That relationship with their members is always treated as priceless.’
Spreading the word
For other lenders, marketing strategies rely heavily on projecting the image of soundness and stability.
‘I think the financial services industry – and mortgage lenders, in particular – are going to have to concentrate on transparency, governance and incentive alignment as part of their marketing strategies,’ says Dr. Jay Hartzell, associate professor of finance and director of the Real Estate Finance and Investment Center at the University of Texas, Austin. ‘I would not be surprised to see a return to basics in terms of product offerings, helping the customer feel like they understand the products. And for less basic products, the marketing and communication are going to need to be very clear and easily understood.’
Len Israel, an independent mortgage banking consultant based in San Juan Capistrano, Calif., concurs.
‘A consistent, clear and accurate statement involving the facts around an organization (e.g., FDIC-insured and what this means) as well as updates as to how the organization is operating in the current environment and the plan for continuity is the initial step that could be taken to assure customers,’ he says. ‘This would be both internally (for employees) and externally. The internal communication is critical, as the employees ultimately must understand thoroughly and be able to effectively communicate with confidence to the customers.’
Robert DeWit, president of Manhattan Bank in Manhattan, Mont., believes the best messaging is one that plays up an institution's strengths without taking a shot at the beleaguered competition.
‘We don't intend to sling mud, although that would be an easy thing to do,’ he says. ‘We intend to maintain the high road, keeping our name and our people in front of the public routinely, and with a positive message.’
And how does DeWit's bank get the message out? ‘Frankly, our best vehicle has been word of mouth,’ he says. ‘Of course, that is built upon a record of good customer service. Speed of service has been an important aspect of that.’
DeWit adds that consistency in keeping that positive message is also required for secondary marketing communications.
‘We have also broadened our palette of purchasers of secondary market loans, increasing the likelihood that we can help any given borrower,’ he adds. ‘In our market, there seems to be an awareness that the local banks – with one or two exceptions – were never involved in the subprime mess to begin with. We don't really have any apologizing to do.’
De novo days
Real Estate Mortgage Network, based in Kennesaw, Ga., never knew what it was like to originate loans in a boom market – the company was launched in February 2008. Dave Caudill, senior underwriter, points out the company's efforts in this proverbial brave new world.
‘The biggest challenge has been adapting to the ever-changing environment,’ says Caudill. ‘As a company, we have to be conservative, because there's no way to forecast when business will take off again. But at the same time, we have to find ways to give our customers something no one else is offering.’
Economic circumstances have dictated Caudill's offerings. ‘While home buyers have read about how the mortgage industry has been shaken, they don't yet fully understand that their options have been severely reduced, so they still want as many choices as possible. Currently, there are fewer programs available, which means fewer customers that will fit into those product types, and the programs that still exist are changing every day. Trying to find that balance between conservative and innovative is the biggest challenge we face.’
Caudill adds that the company has also gone out of its way to hire ‘seasoned veterans with solid reputations for our sales force.’ By focusing on high-quality personnel, he says, the message conveyed is one of trust and experience.
‘The best marketing strategy we can create is to use the reputation of those who represent our name in the field,’ he says. ‘As big of an industry as this is, the mortgage market is still a small world, and reputation equals a decrease in spending.’
Nonetheless, the current crisis poses problems that need to be considered in any communications. Len Israel points out that acknowledging healthy capitalization is a key consideration.
‘Ensuring that the sources for operating capital and/or funding loans are secure would be a paramount concern,’ he says. ‘We have seen that companies with a reliance on the commercial paper market for the aforementioned have run into significant difficulties.’
Israel notes that this message also carries over into the securitization side of the business. ‘Confidence is brought about by consistent, dependable execution,’ he continues. ‘Contingency planning involving what alternative funding sources could be tapped "in the event that…' would be part of this exercise. This definitely entails having a thorough understanding of where funding sources (e.g., warehouse lenders) get their money in order to avoid the unpleasant surprise of finding that contingency outlets are funded from the same source as the primary.’
Dr. Anthony B. Sanders, professor of finance and real estate at Arizona State University's W. P. Carey School of Business, adds that apprehension among investors on the continued threat from fraud is a matter that is still requiring attention.
‘The industry must move rapidly towards consolidated databases to avoid the fraud that occurred during the housing market run-up,’ he says. ‘One servicer, for example, reported a borrower that had 77 owner-occupied properties, obtained by borrowing the funds in a two-month time frame before FICO could adjust its reporting. Also, the Department of Housing and Urban Development recently reported that five million illegal immigrants received loans using stolen Social Security numbers. Until the international capital market is convinced that we can tackle the fraud problem – through cooperation between lenders, servicers and other parties – we will not see a return of the securitization market.’