Home equity lending in the new marketplaceJeff Seymourmarketing tips, home equity products, promotion Since 2001, lenders have enjoyed one big party. The combination of record low interest rates and double-digit property appreciation has tempted consumers with the prospect of low rate refinancing of their first mortgages, and tapping into their home equity for home improvements and settling high-interest credit card debts. After all, with rates as low as 2.99 percent, why not? Well, the party's over and some lenders area worried that the hangover is about to hit them. As interest rates rise, refis will dry up and consumer borrowing will slow down a bit (after all, we are creatures of habit). This may seem bleak, but opportunity still exists, especially in the home equity market. Historically, consumers have used first mortgage loans as a way to reduce their monthly payment obligation by rolling their higher rate, unsecured debt into a first mortgage refinance transaction. By doing this, the borrower would typically secure a lower interest rate and lower monthly payments. Now, given what has happened in the past few years, no one wants to refinance their mortgage from a rate in the fives to a rate that could be creeping up into the mid- to high sixes. Herein lies the real market opportunity for home equity lenders. So, how do you get the word out about your great home equity product? Here are some suggestions that you may want to consider: 1. Print Ads Print advertisements can be a great way to spread the word about a product. Print ads are nimble they have a quick turnaround time and changes can be made very rapidly. Also, print ads are very cost efficient when you consider the number of prospects who see it. You'll have to make three big decisions when it comes to advertising: What's your message, where do you advertise and when do you run the ads? First, if you're going to build your message around your rates, make sure they are competitive. There's nothing worse than seeing your ad next to another institution's ad that features a better rate. If your rate is nothing to brag about, that doesn't mean you can't advertise. Take another approach by building your message around a competitive advantage, such as service. If your rates and fees are equal to those of your competitors, emphasize excellent customer service and quick delivery. The second decision you have to make is about where to advertise. Youre better off targeting papers within the area of your branch's footprint, since this area will contain the people who are more likely to respond to your ad. Lastly, you need to decide when your ads will appear. In my experience, weekends tend to be when more people are scanning the newspaper for information about these products. I suggest advertising one weekend every month during spring and summer (which tend to be "home equity season"). The first day the ad runs, you'll see a lift in application volume that will last six days. Then, expect to see the requests for information drop back down to normal range, which means it's time for the next ad to kick in. Managing the peaks and valleys of application volumes will keep you on speaking terms with your application processing managers. 2. Direct Mail I'm a big fan of direct mail. It allows you to focus only on the prospect you want to talk to. One of direct mail's biggest strengths is that you can personalize it for different groups of people, and decide which product you want to promote. I suggest working with a credit-reporting agency to pick out people with the credit profile you're looking for. You can specify a minimum FICO score, the number of mortgage trades and/or the aggregate balances of outstanding credit (the higher the balances, the more likely they'll be looking for help with debt consolidation). Don't worry about violating any privacy laws, you are prospecting on the aggregate and will not get any personal information on your prospects until they respond to your offer. Some institutions only do direct mail with their own clients, figuring the clients they already have a relationship with will be more likely to respond. There's something to be said for this approach, but it doesn't mean you can't get good business from true prospects who haven't done business you. Remember that home equity loans are a terrific door opener with true prospects. They allow you to establish the relationship and then cross-sell them on other products. To get the highest quality of respondents to your direct mail, apply a response model to your list. Response models are developed by credit reporting agencies. They predict the most likely person to respond to your offer based on their past and current credit behavior. Use the response model to cut the list at the point where you feel that you can put out a profitable mailing. 3. Marketing Through Your Branches Based on what I've seen, if you have a great product to sell that is priced appropriately, there's nothing better than getting it out there through branch personnel. If you can make them into a motivated sales force that's excited about your product, then you have a winning combination. Remember, these are the experts in the markets they serve and the "faces and voices" of your bank in that community. In today's market, selling is just as important as service. Many banks hold their branch staff accountable for sales goals. Everyone from tellers to branch mangers, to customer service reps has some sales responsibilities. To make this work, branch personnel need attractive and slick sales materials to work with. For management's part, incentives are critical. Whether it's a per-unit commission or a set goal for the whole branch, incentives give personnel the push they need to overcome their reluctance to sell. Also, let the staff get creative. I've been in branches where the staff has really taken the initiative and come up with things like having themed sales days. One day, branch personnel will dress up in home improvement clothes to push home equity loans. In another branch, the people working there decided to pass out newspapers at train stations with home equity flyers. People really do get excited about selling a product if you create hype around it through sales promotion. When you look at the return on investment for every marketing channel, nothing is better than an energized sales force in your branch. This is not the "old school" bank with a branch manger sitting in a back office with the doors shut. In the future, successful banks will have energized, sales-oriented managers who motivate staff to look at every service opportunity as a sales opportunity. My branch was successful because as a branch manager, I helped our customers when problems arose. When I was with each customer, I would make sure that they knew that their problem was now my problem. Once it was fixed, it would inevitably show up in new sales because people were comfortable enough to allow me to help them. Once you become the person they turn to when they have a need, they feel comfortable listening to new ideas from you. The bottom line is that home equity products are still alive and well. It's just a matter of how you promote them. With a little help from marketing, these can still be a good way to generate sales, achieve your growth goals and cultivate new customer relationships. Jeff Seymour is marketing manager for Integrated Loan Services. He may be reached at (800) 842-8423 ext. 1364 or e-mail [email protected].