Summer 2007

Road Map to Become A Trusted Advisor


In a commodity business such as mortgage lending, an opportunity to deliver something of unique value is rare.  The 2007 through 2008 market is handing us an opportunity to differentiate our mortgage lending brands as never before.  There is real demand for a trusted advocacy role – is your bank brand positioned to maximize this opportunity and assist with the emotionally charged issue of keeping the families you serve in their homes? This is the chance to reach consumers who, for whatever reason, are not in a mortgage relationship with you and need your help and advice to get into a mortgage that will keep them in their home.

Between now and the end of 2008, nearly $800 billion in ARMs will see their first payment reset, at a time during which rates have risen and available programs diminished. This will result in higher payments (or, as many recent press articles refer to the situation: ‘payment shock.’)  While you may not have created these problems – your brand has an opportunity to be positioned, with your mortgage lending, as part of the solution.  The solutions that we will outline are formulated from cross-sell strategies for helping your nonmortgage relationships obtain a mortgage relationship with your bank.

Many of these ARM reset consumers will have some form of financial relationship with your bank, and most will not have a mortgage relationship with your institution.  Some of your consumers may have taken out the wrong mortgage with another provider. Can you help serve this segment of ‘nonmortgage relationships’?  You can.  Given your valued relationship, you are well positioned to assist as a trusted financial advisor to help secure a better financial future for your customer.  Why not take this opportunity to the full extent that you can?  Some of your consumers have a chance to stay in their homes, and they need your help.  We will lay the groundwork for building a successful strategy, punctuated with examples of tactics that can be a meaningful way to differentiate your brand, and make a remarkable difference in your local markets.

How can you identify your bank customers who may be faced with escalating payment resets on the near horizon and help them preserve their home?  The purpose of this article is to take a fresh look at this and find the right strategies and tactics to help your consumers.  In return, your bank has the potential to earn 'loyalty for life’ and probably a lot of referrals along the way.  Solutions abound.  Any well run business has limited resources – how can you best leverage your existing resources and mortgage industry products and services to efficiently and effectively help your ‘nonmortgage’ customers’ needs?  Today’s mortgage and credit industry offers many feasible products and services that are well-positioned to help your brand make this more easily attainable.

Where do we begin?  Property information is public.  Information on property ownership and liens (including lien riders) is in the public domain, and therefore available to you.  Your bank consumer may not have chosen you for their current mortgage, but it is well within your power with public data to determine which of your customers have a loan, and know what the terms are, and project where there could be financial stress and/or a better economic solution with your mortgage products.  This lays the groundwork for devising a strategy of how to match and size your resources with the proper bandwidth to maximize your efforts.


Traditionally, the mortgage industry has used loan modification and forbearance programs as a means to keep consumers facing hardship in their homes.  In addition, for the past several years both housing price value gains and favorable interest rates have helped assist consumers as well.  Unfortunately, for a variety of reasons, not everyone in need will be able to obtain a loan modification.  It is likely that some consumers who are willing to reach out to discuss their situation with their current mortgage servicer will most likely receive these programs.  However, others will not. Here’s where your brand can make a difference.  How? By stimulating interest in these issues now with your consumers before financial crisis has landed on their front door. Here’s an outline for a successful strategy . . .

  1. Homeownership and Credit Counseling.  Consumers with poor budget and payment behavior characteristics need homeownership and credit counseling and coaching.  Offering this now will aid your consumer in understanding their options in the future – it will also endear them to your brand as well.  Some of your consumers will be self-directed – do they have access to the tools they need and can they identify them with your brand?

  2. Creative Portfolio Lending.  In some cases, your CRA programs may be well-positioned to help the underserved.  In other cases, it may be time to bring back programs such as PAMs (Pledged-asset Mortgages) and work with family and local community groups (faith- and trade-based, etc.) to assist families with a pledged-asset mortgage in order for extended families (or community groups) to have an opportunity to assist loved ones in staying in their homes versus the experience of a foreclosure on their current mortgage.

  3. Local and/or State run community programs and grants for the current mortgage servicer and local originators.

  4. GSE programs such as FNMA’s HomeStay® and MyCommunityMortgage® or FHLMC’s Affordable Gold® and Community Gold® programs.

Which of your consumers need help?  Here is a suggested outline of a plan that can work for identifying your nonmortgage customers:

  1. Who has an ARM?
  2. How large is the issue in the FICO-challenged ranges, i.e. below 575, 620, etc.?
  3. Who had an ARM or I/O payment increase recently or will within the next 36 months?
  4. Who has missed a mortgage payment in the past 12 months?

Personal loans, auto loans, and credit card relationships allow you instant access to detailed credit and transactional history on your consumer.  This is the area where you may wish to begin.  Preventing consumer financial issues ahead of time will obviously aid your bank’s profitability.  If your consumer defaults on their home mortgage with another provider, it stands to reason that their trouble may show even before if their relationship is with a personal, auto or credit card debt with your institution.

  1. Build your Road Map.  Establish an opportunity matrix that identifies your company’s core competencies best situated for you to focus on coupled with where the largest opportunities exist.  Mortgage and credit industry tools are well positioned to fill in the missing gaps presented here.  The following is based upon a broad stroke of chief underwriting characteristics that you will need to deal with and help you formulate a plan:

     

  2. Consumer Advocacy Role.   I have never met anyone in financial services that did not want to earn this role with their consumers.  Even consumers of ample creditworthiness will be watching how your brand interacts with members of the local community - ultimately foreclosures can have unforeseen consequences on local property values and overall local economic conditions.  The current market provides an incredible opportunity to shine in this role as never before.  Make contact now and take steps to coach your credit-challenged customers. Many of the consumers that are or will be stressed financially by the coming payment increase in their mortgage obligation are in this situation primarily because of their own history of poor credit behaviors.  You’re a financial institution – coaching them on how to budget and improve their credit profile is what is needed.  Mortgage and credit industry tools exist now to assist and help make this a manageable and attainable business goal. 

    • Here’s a sample of material you can already begin to use . . . http://www.mgic.com/stratserv/consumermktgmaterials.html
    • Use your bank branch network and sales teams to hold homeownership preservation and credit coaching seminars.  These are wonderful opportunities to show to your local communities of how involved your bank is in their needs. 

  3. Identifying the available Loan Programs.  Grants? GSEs? HFAs? Which one works best? Which is the right fit?  Guess what – we already have that work done for you.  Just visit http://www.mgic.com/emergingmkts/emergingmkts.html for a review of all the various possible solutions that are available for your consumers.

  4. Dealing With Reality.  The right tools invite your consumer to ‘Opt-In’ and have your financial institution take an active role in reviewing their credit scores and transactional payment histories where you do not have a debt relationship - such as a checking account customers.  Properly planned, you can identify the consumer segments needing the most attention and find a profitable niche that you can indeed serve and assist.  Consumers with blemished credit that take action now will have more choices later.  You can be the life line that they need.

Help your troubled consumers find you.  Your lending ethics, trusted brand equity, and more traditional mortgage products are now more important than ever to consumers, and can make a lasting impression.    Accelerate this trusted advisor position in all your communication connections.  Talk about your solutions for broken loans that your consumers have originated with another provider.  They have not connected with you on their previous mortgage experience – now is the time to re-connect with them and to solve an issue that most likely is ‘keeping them up at night.’

For more information about how MGIC can help you, please contact your local MGIC Account Manager.

 

Article written by Mark E. Marple, Vice President - Mortgage Banking Strategies, MGIC Capital Markets Operations