As the mortgage market evolves, so does the dominant demographic of homebuyers. Right now, underserved markets present the greatest growth opportunities for mortgage lenders.
If you want to take advantage of this opportunity, you need to understand why underserved markets are so valuable, what challenges these communities face, and how you can help them overcome these challenges.
In this article, we’ll explain how you can use data to uplift underserved homebuyers and grow your mortgage lending business. We’ll also highlight some tools you can use throughout the process.
Table of Contents
#1 Forecast Into the Future
With this year’s sky-high interest rates, many lenders have been focusing most of their time and energy contending with the current market conditions. However, due to the cyclical nature of the mortgage market, these conditions will naturally change in due time.
With this in mind, you should pay equal attention to what’s coming down the pipeline in the next few years. Data forecasting can help you identify opportunities for growth and update your strategies accordingly so you’re ready to capture that business when it arrives.
Currently, the pool of home buyers is shifting toward minority groups and people of color. By tailoring your strategies to more diverse demographics today, you’ll have a better chance at winning their business tomorrow.
Why Are Underserved Markets Becoming So Valuable?
Here are four reasons why underserved markets will present so much value to lenders in the coming years:
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- Diverse groups are driving the most household growth – By 2040, an estimated 70% of new homeowners will be of Hispanic heritage.[i]
- The current regulatory environment promotes equity – The Biden administration has been enacting many regulations that pave the way for more equity in the lending space.[ii]
- People are demanding social change – Modern consumers are more socially-conscious than ever before. Lenders that uplift underserved communities will be rewarded with valuable social capital, while those that don’t will be more likely to lose favor and fall behind.
- Lenders are actively seeking new opportunities – In light of the recent market downturn, many mortgage lenders are eagerly searching for opportunities in new markets. It just so happens that these opportunities currently exist within underserved communities.
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As you can see, these four trends have created a perfect storm for underserved markets to finally receive the attention they deserve.
#2 Understand The Problems Facing Underserved Markets
Once you commit to the goal of serving underserved markets, the next step is to understand who these borrowers are and what they need from the lending experience.
While each minority market segment is unique, many of them face the following challenges:
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- Limited family experience in the housing market – Due to racist regulations from decades past, some American families haven’t had the opportunity to enter the housing market as early as others.[iii] As a result, many minority homebuyers may not have any family members they can turn to for real estate advice. They may also have fewer generational resources to pull from to put towards down payments and closing costs.
- Lack of credit education – While American consumers lack adequate credit education at large, this is especially true in minority communities. In part, this goes back to our previous point—borrowers who are the first in their families to pursue homeownership may not have adequate knowledge about credit scores or the lending process.
- High denial rates – Did you know that the mortgage denial rate for black applicants is double that of white applicants?[iv] In addition to that, minority applicants also face higher withdrawal rates. Oftentimes, borrowers withdraw from the lending process after being counseled out of it by their lender. For instance, a minority applicant may be told that their credit score or debt-to-income (DTI) simply isn’t high enough. Rather than advising these applicants on how to improve their creditworthiness, many lenders simply reject these applicants on the spot.
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- Lack of trust – Many young homebuyers lack trust in loan officers and housing professionals. According to a 2022 National MI report, only 70% of respondents said they trusted their loan officers.[v] Homebuyers of color were 22% less trusting of their loan officers than white homeowners, showcasing how race and ethnicity only exacerbate the issue.
Understanding these challenges can help you connect with aspiring homeowners from underserved communities and address their concerns head-on.
#3 Create Strategies to Combat the Challenges Facing Underserved Communities
Once you’ve familiarized yourself with the challenges that underserved communities face, you can start filling in the gaps for them and establishing trust using these strategies:
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- Engage in the communities you want to serve – Before you start promoting your loan products, it’s important to connect with the borrowers you want to attract. You can do so by attending community events and hosting educational seminars at local churches, libraries, and non-profit organizations.As you forge relationships with potential borrowers, you can inquire about their experiences in the lending space and learn more about their concerns. Giving these underserved borrowers a chance to finally feel heard can help you understand their position in the market and win over their loyalty.
- Generate helpful educational content – Next, you can bridge the education gap for minority borrowers by producing content on relevant topics, such as credit score improvement, DTIs, private mortgage insurance (PMI), and more. For instance, at Certified Credit, we’ve produced the following articles for aspiring homebuyers:
- Your Top 10 Credit Questions Answered
- 10 Common Credit Score Myths
- Consumer Credit Score vs. Mortgage Credit Score: What’s the Difference?
- 4 Strategies to Improve Your Applicants’ Credit Scores
- How Much Does a Collection Impact Your Credit Score?
- The Five C’s of Credit & How They Can Impact Your Score
By bringing your borrowers up to speed on these types of topics, you can help them make informed financial decisions and position themselves to qualify for the loan products they need in the near future.
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- Optimize your business setup and marketing strategies – It’s important to review your business and make sure it’s set up to support underserved communities. You can start by asking yourself the following questions:
- Do you have loan officers who come from the communities you want to serve?
- Do you have any bi-lingual staff members?
- Do you offer Spanish-language lending materials?
- Do you provide affordable loan products?
- Are you well-versed in relevant housing assistance programs?
- Optimize your business setup and marketing strategies – It’s important to review your business and make sure it’s set up to support underserved communities. You can start by asking yourself the following questions:
By ensuring your lending services are accessible and affordable for minority borrowers, you’ll be much more likely to win over their business.
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- Tailor your services to each borrower’s needs – While many minority borrowers struggle with similar housing hurdles, you still need to customize your service to each borrower. For instance, a first-time homebuyer searching for a starter home will likely need more guidance and hand-holding than one who is on the lookout for a second home.
- Get local realtors on board – Lastly, it’s a good idea to reach out to realtors that already work with the communities you want to target. This way, you can make sure they know about the housing programs that can help underserved homebuyers, such as Special Purpose Credit Programs (SPCPs) and down payment assistance programs (DPAs). These programs can make a world of difference for homebuyers who have limited credit histories or insufficient down payment savings. Unfortunately, realtors typically aren’t educated about these programs at the same rate as loan officers.
#4 Pick the Right Partner
Employing the strategies above is easier when you work with a partner that offers the right tools. For instance, here at Certified Credit, we offer:
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- Credit score improvement tools – Not every mortgage applicant has the credit score they need to qualify for a mortgage right away. However, they may be able to boost their scores in due time if they take the right steps.With the help of our credit score improvement tools, you can combat the high minority denial rate by saying “not yet” rather than “no.” These tools can give your borrowers a roadmap of what they need to do over the next few months to achieve a certain credit score increase. By using them with your non-qualifying applicants, you can help them get their credit scores mortgage-ready and be the first lender they think of when they achieve their score improvement goals.
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- Cascade Alerts – Another tool that can help you nurture your relationships with minority homebuyers is Cascade Alerts. This automated lead generation solution monitors your past and present clients’ credit reports for mortgage-related inquiries. Once one is identified, Cascade Alerts can send you a prompt notification, enabling you to reach out to the borrower at the right time and hopefully gain their repeat business.Unlike trigger leads, Cascade Alerts only connects you with mortgage-seeking applicants you’ve already established relationships with. Thus, these leads will be more likely to take your call and be open to hearing your business pitch.
At Certified Credit, we also share many educational resources on our blog that you can pass on to your applicants.
Grow Your Business in 2023 With Certified Credit
Tapping into the opportunities that exist within underserved communities can help you grow your mortgage lending business and improve the housing prospects for minority homebuyers. So, why not start the process today?
If you’re ready to kickstart your new business strategy with innovative solutions, Certified Credit has you covered. Along with our credit score improvement tools and Cascade Alerts, we also offer:
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- Affordable credit reports
- Automated prequalification
- Automated verification of income and employment
- Automated undisclosed debt monitoring
- Credit score improvement tools
- Flood zone determinations
- Fraud and risk support
- Settlement services
Want to learn more about the value of underserved markets? Check out our Talk Data to Me Podcast episode with Laird Nossuli, CEO of iEmergent.
Sources:
[i] Urban Institute. The Number of Hispanic Households Will Skyrocket by 2040. How Can the Housing Industry Support Their Needs?
[ii] The White House. FACT SHEET: President Biden’s Budget Advances Equity.
[iii] NPR. A ‘Forgotten History’ Of How The U.S. Government Segregated America.
[iv] Urban Institute. What Different Denial Rates Can Tell Us About Racial Disparities in the Mortgage Market.
[v] National MI. 2022 NextGen Homebuyer Report. https://www.nationalmi.com/wp-content/uploads/2022/11/2022-NextGen-Homebuyer-Report-final-v3.pdf
