An emerging niche opportunity for mortgage brokersMariano ClaudioHispanic market, residential mortgage, refinancing, commercial real estate
Marketing commercial mortgages to Hispanic
entrepreneurs
Much has been written in recent issues of The Mortgage
Press about the immense potential for residential mortgage
brokers to expand their customer base by reaching out to Hispanics
- a market that is growing exponentially in both size and buying
power. The article I wrote for the January 2007 issue ["One size
does not fit all: Understanding the distinctions of the Hispanic
market"] reported on a comprehensive study of Hispanics in America
that found by the end of the decade, Hispanics will account for
nearly 14 million households and their spending power will reach
more than $670 million.
Unfortunately, across that board, residential mortgage
originations and refinancing continue to weaken. However, the Federal Reserve Board is
reporting continued strong activity from the commercial real estate
markets. For mortgage brokers looking for new opportunities in the
face of changing market conditions, marketing to Hispanic
entrepreneurs holds considerable promise.
One in 10 small businesses today is Hispanic-owned, up 82
percent since 1997, making them among the fastest-growing business
segments in the nation. By 2010, there will be an estimated 3.2
million Hispanic firms generating $465 billion, according to U.S. Hispanic Chamber of Commerce and
the Small Business Administration.
More than other entrepreneurs, Hispanics and other minorities
often lack the access to funds and sophisticated business advice
needed to make their start-up businesses successful, according to
"Entrepreneurship in the U.S.: The 2004 Assessment," by Paul D.
Reynolds of Florida International
University. This single largest study to date measuring
entrepreneurial activity in the United States gathered details on
entrepreneur demographics such as ethnicity and education. It found
that while Hispanics are more likely than whites to be involved in
a start-up effort, they are less likely to end up with a new
firm.
With this in mind, mortgage brokers should look for commercial
lending products that address the challenges that Hispanic
entrepreneurs often face. One option is an alt-A small-balance
commercial mortgage that can help Hispanic (and other)
entrepreneurs start and operate small businesses by providing the
financing to purchase office or warehouse space, or the equity to
grow by utilizing the cash equity in an existing property.
Meeting the challenge of access to funds
Typically, the circumstances under which banks will write
commercial loans are very narrow, often requiring full
documentation, as well as hefty credit and borrower liquidity. As a
result, banks turn down a significant number of requests for
commercial loans. The alt-A small balance commercial mortgage can
help lenders meet the needs of Hispanic and other minority
entrepreneurs.
Meeting the challenge of sophisticated business
advice
Another reason alt-A commercial mortgages are well-suited to
Hispanic entrepreneurs is because they are less complicated to
understand, with many of the familiar features of traditional
residential mortgage loans. Options include stated-income with
verified assets, loan-to-value ratios up to 90 percent, fixed- and
adjustable-rate programs, and 25-year and 30-year fully amortized
payments with no balloons. Reduced documentation requirements based
on credit scores and collateral is another feature resulting in
less paperwork than what full-service banks normally require for a
commercial mortgage.
The following scenario illustrates one example in which an alt-A
small balance commercial loan makes sense for the Hispanic
entrepreneur when compared to traditional loans. The borrower has
been in his business or occupation for several years when there is
a change in income due to a recent event or timing. An alt-A
small-balance commercial loan gives this borrower the option to
state reasonable income without needing to submit tax returns and
business income statements.
Few countries in the world can match the United States'
entrepreneurial level of activity, with more than 20 million
Americans starting a business or managing a new one, reported the
"Entrepreneurship in the U.S.: The 2004 Assessment" study. Millions
of Hispanics are already realizing the American dream of
homeownership. An alt-A commercial mortgage can help them grow
their entrepreneurial spirit as well.
Mariano Claudio is executive vice president of emerging
markets for Pinnacle
Financial Corporation, an independently owned direct mortgage
and wholesale lending unit of The Pinnacle
Companies, a family of companies that also includes wholesale
commercial mortgage lender Pinnacle Commercial
Mortgage. He can be reached at (703) 738-9380 or e-mail
[email protected].
