Serious marketing

Mortgage Banking, April, 1995 by Mary McGarity, Eileen Pallotta

What are mortgage lenders doing to drum up business now that the refi well has run dry? Big dollars are going into television and newspaper ads, even as big dollars prove harder and harder to find. But the big debate is over whether to target Realtors or go directly after consumers.

What is your company doing in the way of advertising these days? With rates up, originations down and profits shrinking, mortgage companies are looking to cut their budgets any way possible. So in times like these is advertising considered a nonessential luxury? Not necessarily, according to a number of mortgage company executives.

Traditionally advertising was one of the first areas to get the ax in hard times. But that sort of thinking has changed at many companies. Advertising and marketing are considered by some to be even more crucial in today's tougher origination market than during times of prosperity.

"We need to look at sales and marketing as an investment in the business, and not as an unnecessary budget expense," says Douglas Smith, vice president, sales and marketing, with BancBoston Mortgage Corporation, Jacksonville, Florida. "I think the industry is waking up to realize the importance of marketing."

But in today's competitive market, mortgage companies are looking for smart ad strategies that don't cost a fortune. Advertising is a more difficult task today than it was during the refinance boom, when a mass media newspaper or radio ad might draw a good response rate from the general public. "In the last few years you could do a little bit of advertising and really get your money's worth because so many people were refinancing," says Joan Carr, senior vice president at Prudential Home Mortgage Company, Inc., Clayton, Missouri. "Now, advertising goes back to where it was five or seven years ago when it wasn't as cost effective. You have to be very careful about your advertising dollars."

Current marketing approaches range from blanketing a local area with flyers to developing huge nationwide affinity marketing programs. Print and television ads, telemarketing, and direct-mail campaigns continue to be popular.

Promises of speedy and smooth loan approvals are at the center of many ad campaigns. Preapproval and precommitment programs, often targeted toward consumers who have yet to even find a home, are also popular marketing tactics. Some see a huge potential market in the audience of consumers who don't yet realize they may be able to qualify for a mortgage or afford to buy a home.

Companies are also using advertising to target specific minority groups to help comply with fair lending laws. And originating loans through contacts with real estate agents remains at the core of many mortgage companies' marketing strategies. But rather than just dropping in on Realtor offices with a rate sheet, companies today are often designing special programs and incentives to maintain Realtor business.

Realtor referrals still key?

Many believe Realtor referrals have become even more critical in today's competitive, largely purchase-money mortgage market.

Peter Lansing, president and owner of Universal Lending Corp., Denver, says, "I believe over 90 percent of all the business generated in today's market is generated at the point of purchase by a Realtor. Consumers still do listen to their Realtor's guidance."

But others feel the real estate agent may be playing less of a role in the lending decision. BancBoston's Smith believes that today's borrower is more savvy about obtaining a mortgage and relies less on a Realtor when picking a lender. Studies commissioned by BancBoston during the last five years show that originations by Realtor referral are "shrinking dramatically every year, Smith says.

A 1990 study funded by BancBoston asked 2,000 homebuyers where their choice of lender originated. Fifty-eight percent said it was through their Realtor. A similar BancBoston study performed in 1993 asked the same question, and the number of homebuyers who used a lender referred by a Realtor had dropped to 40 percent, Smith says. "That showed a major shift," he says. BancBoston is funding another study this year to gauge the ongoing direction of this important trend.

"Prior to refi mania, mortgage lenders would have looked to the real estate and builder communities for the referral of probably upwards of 80 percent of the business that they did," says Tim Ross, president of Ross Mortgage Corporation, an independently owned mortgage bank in Oak Park, Michigan. "In the post-refinance era, we're only going to be able to look for maybe 60 percent of our business from those communities, and it's only going to go down from there," he says.

Perhaps one of the more telling signs that Realtor-based originations may be on the wane is the fact that behemoth Countrywide Funding Corporation, Pasadena, California, is shifting its advertising focus this year from the Realtor to the consumer. "With Countrywide's growing diversification in its product offerings, we have adopted an overall strategy that places more emphasis on marketing to the consumer directly," says Stanford Kurland, senior managing director and chief operating officer of the company.