TheMReport — News and strategies for the evolving mortgage marketplace.
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22 | Th e M Rep o RT Feature one to three years, that does not mean that they should be over- looked when marketing other home-equity products. Why would those customers be in- terested in another home-equity product if they've just refinanced at low interest? There are numer- ous reasons, including taking advantage of rising home equity to consolidate loans, remodel or refurbish their home, send their child to college, or start a new business. Even if these customers recently refinanced, these needs still may not have been met. A second mortgage is the right fit for customers who already have favorable terms on their primary mortgage. The bulk of consumers who have at least $5,000 in debt is an estimated 19.5 million people. With a second mortgage, consumers can still take advantage of many of the substantial benefits of tradi- tional refinancing: a lump sum of cash, tax-deductible interest, and the credit-score bonus of taking out a secured loan using the appreciated home as col- lateral. This is the right time to market second-mortgage loans while mortgage interest rates are still appetizingly low. What is the customer's credit score? And, more impor- tantly, are they willing to see that score take a hit in exchange for the advantages offered by a HELOC? A s opposed to the lump-sum payment provided by a refinance or second mortgage, a home-equity line of credit (HELOC) offers credit that can be used over an extended pe- riod of time. The money can be used for whatever the customer desires, without restrictions. The longer-term nature of a HELOC makes it ideal for ongoing pay- ment obligations, such as college tuition, an auto loan, or a new business enterprise. But the flexibility of a HELOC comes with a price. First of all, most (though not all) HELOCs come with monthly maintenance fees. Second, the interest payments on a HELOC are only tax-de- ductible if they are to be used for home repair or improvement, and they will have to take a test for proof. Finally, HELOC customers will need to be prepared to take a hit on their credit scores of up to 80 points, which will affect any loans they may be able to take out subsequently, as well as the interest rates involved. HELOCs are not to be marketed to custom- ers with subpar credit scores but rather to those who are willing to trade off their higher score for the obvious benefits a HELOC pro- vides. For those customers who are more conservative regarding their credit rating, it would be bet- ter to steer them into a closed-end mortgage product. Do you currently offer home- equity products such as sec- ond mortgages and HELOCs as part of your lending portfolio? If so, are these products receiving the marketing and promotional coverage they deserve? T his may appear to be an obvious question, but many mortgage marketers do not consider home-equity products worth the effort of including in their standard campaigns. Sev- eral strategies can be executed by employing the principles of customer-centric marketing and making targeted propos- als to prospects and customers based on income, age, region, family status, and credit his- tory. Knowledge is king, and the more you know about the potential customer, the better equipped you will be to help them transform their equity into something more tangible. Are your customers aware of the risks inherent in dipping into their home equity at a time of higher interest rates? B y encouraging an open channel of communication with your customer, the deci- sion of which risk to take will become more transparent as you uncover their needs. When you guide your customer into choos- ing the "best fitting" product, not only will they be more likely to be able to pay back their loan, but the trust and credibility you build will keep them returning to you for future products. Changing Times, More Diverse Products N ow is a good time to be in the mortgage-marketing business as home values are rising, and interest rates are still low while inching up just enough to make a wider range of home-equity products invit- ing to homeowners. Don't miss out on the advantages in this evolving market by playing the same-old, one-note refinance tune. Yes, cash-out refinanc- ing will remain a fundamental solution, but second mortgages and HELOCs allow you to diversify your lending portfolio with products that could be at- tractive to customers who have recently refinanced. And the more diverse your portfolio, the better off you'll be—in any kind of economic times. "Forward- looking lenders are using predictive data and analytics to manage the risks and opportunities in this new rate environment." 03 04 05 Kesna Lawrence is the SVP for client strategy at Datamyx, the top provider of data-driven technology solutions for direct marketing in the financial services, automotive, and insurance industries. Prior to joining the Datamyx team in 2004, Kesna held leadership positions at both ABN AMRO and Ocwen. He holds a B.S. in finance and economics from Florida State University.