How Diversity Pays Off for Lenders
This article ran as the cover story in Mortgage Compliance Magazine, discussing how focusing on diverse markets in recruiting and marketing is an economic imperative.
By Gary Acosta, Co-Founder & CEO, National Association of Hispanic Real Estate Professionals
November 6, 2019
When people in our industry hear the word “diversity,” it reminds many of a compliance issue rather than a business opportunity. Diversity is associated with regulation and nobody enjoys being told what to do, especially when the rules seem to be arbitrary. There are companies that genuinely want to do the right thing and view diversity from that standpoint, and there’s nothing wrong with that. However, with the Hispanic market representing roughly 63 percent of U.S homeownership growth, a focus on diverse markets, especially Hispanic markets, should not be viewed as a regulatory responsibility or a nice thing to do, but rather a business and economic imperative.
Over the past several years, there have been numerous examples of mortgage lenders that have focused on the Hispanic market as part of their core business strategy, which has resulted in faster growth and higher profits. In fact, the top three lenders in the country account for 14 percent of all mortgage originations nationwide and 20 percent of all loans made to Hispanic homebuyers.
While most lenders support diversity in concept, by delegating diverse markets to their compliance departments, they are in effect placing themselves at a competitive disadvantage. The Hispanic market opportunity is just starting to take shape, but harnessing its potential must begin by understanding just how large the opportunity is.
The Hispanic market is not a niche
Over the past 10 years, more than 1.5 million Hispanics became new homeowners. More recently, the Hispanic homeownership rate rose nearly an entire percentage point in one year, from 46.2 percent in 2017 to 47.1 percent in 2018.
While the Hispanic homeownership rate is still lower than the U.S. average of 64.8 percent, much of this difference is due to the relative age of the Hispanic population. At a median age of 29, Hispanics are a full 10 years younger than the overall median U.S. age and are just now aging into their prime home buying years. The Urban Institute projects that Hispanics will comprise more than half of all new homeowners within the next few years.
Obviously, lenders have a lot to gain by building a comprehensive, integrated strategy to serve the Hispanic homebuyer market. While compliance should not be the primary motivation, there are significant benefits from a regulatory standpoint as well.
For example, ratings under the Community Reinvestment Act are critical for banks to operate within their full range of activity, as anything less than a Satisfactory Rating precludes a bank from engaging in any merger and acquisition activity. Since Hispanics homebuyers are primarily first-time buyers, lenders can sometimes improve their CRA scorecards by originating more loans in Hispanic communities.
Connecting with the Hispanic market
The best way lenders can attract more Hispanic borrowers is the same way they attract all borrowers—through marketing. Like any other consumer, Hispanic homebuyers are drawn to brands that engage with them. That means publishing or broadcasting advertisements that show Hispanic borrowers and contain content that is reflective of Hispanic culture.
However, mortgage lending is still a people business, and companies with sales and marketing personnel that reflect the customers they are serving will outperform those that don’t.
To attract their desired target market, lenders need to invest a certain percentage of their marketing and recruiting budget on a strategy that engages with consumers through their culture and, when appropriate, through language.
An interesting note is that Hispanic marketing strategies have traditionally been Spanish-language marketing. While approximately 20 percent of U.S. Hispanics are Spanish dominant, a full 81.5 percent of Hispanics in the U.S. speak English exclusively. When Spanish-language ads are seen by a consumer who speaks mostly English, that consumer feels they are not the intended audience.
Relevant loan products
Approximately 60 percent of Hispanic homebuyers are first-time buyers. Lenders that are proficient in low down payment mortgages, including those that allow for down payment assistance, will have a competitive advantage. Niche loan products such as ITIN loans may give some lenders a leg up on the competition, but represent a very small percentage of Hispanic loan originations.
Hispanics are driving growth in household formations, labor force participation and small business creation. For this reason, our industry should be supporting programs and policies on the state and federal level that expand access for prospective Hispanic homebuyers.
There is a reason why many of the top lenders have captured the bulk of new Hispanic homebuyers. They are making a focus on growth markets a priority in their recruiting and marketing practices. The good news is that any lender can—and should—be doing the same.
NAHREP is a great way to create relationships and learn more about the opportunities and best practices in serving the burgeoning Hispanic market. With 30,000 members and over 80 local chapters, there is almost certainly a NAHREP event near you.
Gary Acosta is the Co-Founder & CEO of the National Association of Hispanic Real Estate Professionals (NAHREP®), the nation’s largest Hispanic business organization with over 30,000 members and over 80 local chapters. In his capacity as CEO of NAHREP, he created the Hispanic Wealth Project, a 501(c)3 non-profit organization with a strategic plan to both triple Hispanic household wealth and achieve a 50 percent Hispanic homeownership rate by 2024. He can be found at @garynahrep on Twitter.