Emerging markets are areas where opportunity exists to develop business. For the mortgage industry, these also are referred to as “untapped markets,” which means there is opportunity for homeownership growth within these neighborhoods.
One significant such market is that of limited English proficiency borrowers, or those who speak English as a second language. It’s easy to assume that limited English proficiency refers to Spanish-speaking communities, but there are other groups to consider. African, Asian and Arab communities, for example, also contain many potential borrowers who do not speak English as their primary language.
Based on census data from 2018, a record 67.3 million U.S. residents (both natural-born citizens and immigrants) spoke a language other than English at home
. This market is large, and it needs assistance to make homeownership and lending opportunities more attainable. To assist these potential borrowers, the first step is to build trust.
Depending on their cultures and countries of origin, many limited English proficiency communities have a distrust of financial institutions. Additionally, recent immigrants are more likely to be “unbanked,” meaning that no one in the household has a checking or savings account at a bank or credit union. A landmark study released this year by the Federal Reserve Bank of Cleveland found that immigrant households were consistently less likely
than the general population to have a bank account of any kind.
For many, being unbanked can stem from distrust due to negative experiences, or from a more interconnected relationship between financial institutions and the government in their country of origin. Between this distrust and any language barriers, many members of limited English proficiency communities are not integrated into the U.S. financial system. They rely on cash, and many do not possess a debit or credit card.
In 2019, a Federal Deposit Insurance Corp. survey found that an estimated 7.1 million U.S. households (or approximately 5.4%) were unbanked. The same survey showed that 13.8% of Black households and 12.2% of Hispanic households were unbanked, compared to 2.5% of white households. Just like anything else, this tradition of cash rather than credit (along with a distrust of financial institutions) can be carried from generation to generation.
Trust also is a significant factor during the mortgage process as loan documents may be available to read in other languages, but by law, they must be signed in English. These borrowers may have understandable concern about what they’re agreeing to, given that the document is not in their native language.
Furthermore, some English words and phrases don’t translate well, or don’t have a direct translation. A 2017 study conducted for Fannie Mae and Freddie Mac on limited English proficiency borrowers found that not all concepts translate readily
. Certain terminology such as “escrow” or “balloon payment” may not exist in another country, while words like “broker” and “agent” may have different connotations. Therefore, borrowers must rely on their mortgage originator and/or real estate agent, who should establish trust that all terms have been explained properly and that the signed documents match the translated documents.
To foster trust, lenders and originators need to physically be in the communities where little to no English is spoken, and they should have branches that are convenient and accessible. They should have bilingual materials for potential clients to read and understand, then make these documents accessible in branches and online.
But reaching the needs of these communities goes beyond the creation of marketing materials in languages other than English. Lenders and the originators who work with them also should try to have staff who can help not only on the front end but throughout the mortgage process.
From the first interaction of the homebuying process, the real estate agent, originator, appraiser, title agent, inspector, etc., should be able to communicate with the borrower so they understand every part of the process and the details of the home they are purchasing. With any borrower, clear communication is critical to a successful transaction, but it takes on even greater importance when there are language barriers to overcome.
Lenders may find that many limited English-speaking borrowers haven’t established traditional credit, which can be a challenge to work with absent the right loan products. One solution that a lender can incorporate is technology that expands homeownership accessibility by looking beyond merely the credit score.
Lenders should consider other nontraditional factors that can help establish the borrower’s ability to make payments. Leveraging payment history for rent, utilities, insurance, child care, tuition, internet, phone bills or even a car lease can help determine whether a borrower is creditworthy.
There may be other companies and nonprofit organizations already embedded in the communities that a lender wants to reach. Local churches or nonprofits may already be working within these communities to improve financial literacy (such as personal finance or building credit). These groups can be great advocates for connecting lenders and real estate agents to individuals in these communities.
As a mortgage originator, seek ways to partner with these organizations. Working with nonprofits, churches and real estate agents to invest in these communities is critical as potential borrowers are likely to already know and trust these partners. This can carry over to trusting the lenders and financial institutions that these parties recommend.
Untapped markets create a huge opportunity in times when the housing market is challenging. Building trust within a community not only helps to bring in business — it also sets up limited English-speaking borrowers for success.
This requires an investment of resources along with time to build trust and relationships. Having the right resources and products in place, however, can make a substantial impact on your business and the communities you serve. ●