Archive for the ‘Mortgage Lending’ Category

The Myth of Lost Home Loan Opportunities

Posted by Mara Friedman on June 26th, 2014

Response Scales Since mortgage refinancing has fallen from its 4Q12-2Q13 peak,* the concern from our financial institution (FI) clients is that the opportunity to capitalize on home loan opportunities has passed them by. Fortunately, that’s just another recent financial myth.

Consumers will continue to need home loans regardless of interest rates, as they move, expand their families, adjust to empty nests, retire, etc.  Even when mortgage interest rates were twice their current level, financial institutions flourished. Record low interest rates over recent years have spurred refinancing that otherwise might not have been as appealing to homeowners in the past, but new homes will always be a necessarily.

So while the percentage of total home loan originations has indeed shifted from mainly refinancing to new purchases, is it not true that total opportunities have dried up? Actually, with home equities in the mix, the picture actually gets rosier.

Equity is coming back and, when available, is always a good source of funds for FIs mostly because those loans are highly secured. Also, home equity loans are usually kept in portfolio rather than sold like the majority of 15+ year fixed rate mortgages, giving banks and credit unions large monetary loans to even out their balance sheets.

Datamyx, a leading provider of risk-based, data-driven marketing solutions specializing in the financial industry, compared total home loan applications from the three credit bureaus from July 2013 to June 2014 to find that despite the decline in home loan refinancing over the past year, a significantly larger percentage of consumers are actually shopping for home loans (new purchases + refinancing + home equity loans/lines) this year. An additional pleasant surprise is that the percentage of total loan shoppers who are generally home equity qualified (defined as FICO 680+ and LTV<70%) also increased this past year.

The newly installed Fed Chairperson, Janet Yellen, has shown a commitment to maintaining today’s short-term rate environment over the course of the year.  Lower rates will continue to prop housing demand and ensure that the refinance market does not dry up. Mortgage Bankers Association’s Mortgage Finance Forecast projects total mortgage originations for 2015 to be 15% greater than in 2014.* Add in the contributions of increasing equity as home values continue to rebound and lenders will be met with a glut of demand and will rely on data driven marketing solutions to help target the higher quality loans for all types of home loans – refinancing, new home purchase and home equity.

* Mortgage Bankers Association, Mortgage Finance Forecast


The Future Is Now For Many Financial Institutions

Posted by Stephen Nikitas on April 24th, 2014


Banks and credit unions are sometimes a bit hesitant to implement initiatives aimed at attracting younger account holders. In particular, many resist efforts to reach out to Gen Y… that segment of the population born between 1977 and 2000.

If you are dragging your feet about prospecting to this demographic segment, you may want to reconsider for a couple of very basic reasons.

First, consider income.

Sure … Gen Y does not have a whole lot of money behind them. Many banks and credit unions struggle with the concept of spending precious marketing dollars to attract a population that for the next several years likely will have little if any reason to have anything more than a checking account with their financial provider. Certainly, there is a lot of credence to that concern. As the U.S. economy continues its slow recovery, Gen Y is among the population’s segment most impacted by higher than normal unemployment levels.

However, things are going to change and change quickly. By 2015, Gen Y’s income will surpass that of Baby Boomers. By 2020, Gen Y will see its overall income exceed Gen X1. No matter how you look at, that’s a car loan away. It is definitely not too soon to start those acquisition efforts.

Second, look at the channels through which Gen Y will access their accounts. A recent study found that transaction costs diminish dramatically as account holders gravitate toward digital channels. Check out these numbers from a Javelin Strategy and Research study:


Channel Average Transaction
In person at branch $4.25
Call into contact center $1.29
ATM $1.25
Online Banking $0.19
Mobile Banking $0.10


To no one’s surprise, Gen Y is by far the fastest adopter of mobile banking. As the demographic segment establishes relationships with your bank or credit union, opportunities abound for you to encourage a channel behavior that Gen Y prefers and you desire. While Gen Y may come into a branch office to open its first account, after that, you will be hard pressed ever to see them again. They will access their accounts on the go and consider a trip to the branch nothing but a nuisance.

On top of all this comes the advantage of dealing with a segment of the population that is reaching those life stages when the need for financial products and services is pronounced. The demand for credit and the need for savings assistance is just around the corner from a group that numbers better than 70 million strong, rivaling the Baby Boomer generation in pure numbers and dwarfing Gen X.

As you consider acquisition campaigns for 2014 and beyond, make sure your marketing dollars are focused on Gen Y. While you may not reap the benefits today, in a short period of time your investment will reap dividends in more ways than one.

1. Source: Javelin Strategy and Research – How To Engage And Service The New Mobile Generation – 2011


What’s a Bank Or Credit Union to Do?

Posted by Stephen Nikitas on February 4th, 2014

Digital Marketing width=In my role as a strategist, I have worked with dozens of banks and credit unions throughout the U.S., helping them develop and implement marketing and retail programs.  Over the past three years, virtually every financial institution’s main focus has been: growing their loan portfolio.  In 2013, their efforts certainly reaped dividends as loan growth proved effective for financial institutions throughout the industry.

Due to new mortgage financing regulations that took effect in January, financial institutions are not so confident about 2014.  These regulations could potentially put banks and credit unions behind the eight ball when it comes to mortgage lending, their credit bread and butter.  In fact, many financial institutions are now reconsidering whether they even want to be in the mortgage business anymore.

A key regulation requires financial institutions to ensure borrowers have the “ability to repay” their mortgage loan.  The Consumer Financial Protection Bureau (CFPB) has established a 43% debt-to-income threshold.  That has banks and credit unions on edge.  While ensuring borrowers have the ability to repay their loans is only a good thing, if something were to go wrong, the federal government has amended that repercussions for the lender would be unrewarding, to say the least.

Another regulation grants borrowers the ability to sue lenders within three years of the loan closing if it is determined that the lender improperly documented the borrower’s income or assets or incorrectly calculated the borrower’s financial obligations. This error could cause substantial penalties for vendors, likely up to tens of thousands of dollars.

Compounding all of this is another onus placed upon banks and credit unions.  While the CFPB looks to mitigate the risk to borrowers with one hand, it also sets a disparate income trap.  Banks and credit unions are subject to stiff penalties if their portfolio of borrowers is deemed by the government to be insufficiently diverse.

While financial institutions are in a quandary over this, many can comply with the letter of the law while still growing their loan portfolios. In order to do this, financial institutions need to put data analytics to use.  By identifying “qualified” borrowers, those who show the propensity for a loan along with the capacity to meet the institution’s credit prescreen criteria, financial institutions can take a major step in ensuring that they are directing loans to potential borrowers who possess the capacity to repay these loans.  The data to accomplish this has always been at the fingertips of banks of credit unions.  Many have neglected to use it. Those days are now over.

A complementary benefit of this approach… deploying business intelligence in order to get the right loan opportunity in front of the right account holder will help to ensure the most efficient spend of a financial institution’s marketing dollars.  In the vein of maximum profitability, this is only a good thing.