The pivot from the market conditions the mortgage industry experienced in 2021 has admittedly seemed abrupt. After all, last year’s refinance surge resulted in historic origination volume and jaw-dropping revenues for many.
As refinance demand has dried up due to rising interest rates, the impact on the industry has been clear to see. Despite doom-and-gloom predictions about the lending environment, however, a real opportunity exists that is largely untouched.
Any independent originator or small lender seeking to win over a particular geographic region works consistently to understand the area and be visible there — and not just at the outset of the process.
Lost in the discussion of mass layoffs and shuttered operations is the fact that purchase mortgage volume remains strong. As of July 2022, the Mortgage Bankers Association (MBA) forecast $1.66 trillion in purchase loans for 2022 and another $1.7 trillion in 2023.
With predictions of more than $2 trillion in overall origination volume in both 2022 and 2023, it’s apparent that while the mortgage industry won’t see 2021 volumes again anytime soon, there still is solid business potential for mortgage originators in the purchase market. The near-term outlook there calls for stability and even modest growth, according to the MBA.
“First and foremost, markets have already priced in the bulk of the anticipated rate increases from the Federal Reserve,” MBA president and CEO Bob Broeksmit said earlier this year. “We don’t anticipate mortgage rates will rise much higher than they currently are. They’ll plateau very soon if they haven’t already, albeit with significant volatility.” As rates plateau, home prices remain high and are not expected to plunge.
Of course, competition for purchase loan clients will remain fierce. Although nonqualified mortgages (non-QM), which can’t be purchased by the government-sponsored enterprises, will be bandied about as the ultimate strategy, it will take much more granular targeting to make this approach truly work. Thus, the real challenge for lenders and originators is to target the right market segment with the best positioning and optimal product mix. This market has existed in plain view for decades and is continuing to grow. By and large, however, it remains untapped.
Language barrier
One of the fastest-growing demographics in the U.S. are people with limited English proficiency. This could include anyone who is born in America, or immigrants who do not speak English as their primary language and have a limited ability to speak, read, write or understand the language.
Approximately 25.1 million Americans were considered limited in their proficiency of English as of 2013, a number that is likely to have increased significantly since then. The majority of these individuals (64%) are Spanish speakers. Another 15% primarily speak Asian languages (Chinese, Vietnamese, Korean and Tagalog).
In 2020, the U.S. Hispanic population was 62 million. The U.S. Census Bureau projects this number to reach 69 million by 2025, 75 million by 2030 and 111 million by 2060. It is not a stretch to suggest that the Hispanic market with limited English proficiency will grow as well.
Now consider the fact that shopping for and obtaining a mortgage is a complex and often difficult task, even for fluent English speakers, when reviewing materials or documents in English. The process can be considerably more difficult for those facing a language barrier.
The Federal Housing Finance Agency (FHFA) had planned to add a preferred language question to the redesigned Uniform Residential Loan Application and make it mandatory for loans sold to the government-sponsored enterprises. This plan was scrapped by the Trump administration. But the FHFA announced earlier this year that it plans to start collecting information on an applicant’s language preference by March 2023.
How many potential borrowers have chosen not to seek a mortgage, or have given up in frustration, because they could not understand the process or access guidance in their native language? When one considers that independent originators and small lenders are natural resources for borrowers seeking expert guidance on the mortgage process, it’s fairly evident that the opportunity to earn the business of borrowers with limited English skills is there for the taking.
Borrower journey
Of course, it’s easy enough to suggest that lenders and originators market to non-English-speaking borrowers. There was even a brief movement by some lenders to make mortgages more accessible to non-English-speaking markets just before the Great Recession diverted their attention to other matters. Unfortunately, these efforts often amounted to hiring a multilingual originator or two, or producing a few marketing pieces in a language other than English. The results, unsurprisingly, were less than successful.
Let’s start with the fact that obtaining a mortgage, like it or not, is a journey for any borrower. It’s a process that tends to take two to three months, has multiple stages, and contains more than a few occasions of uncertainty, anxiety and lack of clarity.
While it’s obvious that limited English-speaking loan applicants will find resources in their native languages helpful at the point of application or while negotiating a rate, far too often they don’t have access to similar resources while awaiting results from, for example, the inspection, appraisal or title settlement process. Closing is a critical time to have resources available for the limited English proficiency borrower. The language barrier needs to be addressed throughout the entirety of the transaction, loan application to closing.
Many English-speaking borrowers look to their Realtor, loan officer or independent broker for guidance and assurance at these junctures. A marketing slick or FAQ about selecting a mortgage is of no use at these points in the process. It’s imperative for originators who truly seek to compete in this market to be available throughout the process.
This includes offerings of educational resources and materials from loan application through closing. It stands to reason that the client who has limited proficiency in English but is made to feel comfortable throughout the entire borrowing experience will refer the lender or originator who simplified the experience to others in their circle.
Similarly, any independent originator or small lender seeking to win over a particular geographic region works consistently to understand the area and be visible there — and not just at the outset of the process. The same effort is needed to reach the limited English proficiency market. This means consistent visibility in these communities or regions — not just an occasional pamphlet written in Spanish.
It also means being up to date about developments of importance to these consumers. And it means being sure that their limited English proficiency resources — whether these are marketing materials, explanatory resources or even mortgage documents — are always current and accurate.
From a lender’s perspective, this means offering language resources (or requiring them of their vendors) when servicing a mortgage. If the goal of servicing is to facilitate timely repayment and assist the borrower, a language barrier tends to exacerbate challenges when they arise. Thus, the importance of offering documents, notifications and resources in languages other than English cannot be understated.
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Although there have been indications that both federal and state regulators will increasingly mandate the availability of resources for people with limited English proficiency, it’s highly possible that the market will beat them to the punch. Successful lenders and originators tend to be a step ahead of the crowd when it comes to discovering new sources of business.
Independent brokers and small retail lenders pride themselves on providing additional value to borrowers from a service and guidance perspective. From this vantage point, the limited English proficiency market makes perfect sense for originators preparing to transition to the purchase loan market. ●
