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Emerging markets: Playing chess with Latinos

National Mortgage Professional
Jan 30, 2006

Secrets of courting the move-up buyerDoug Hugginsmarketing, house upgrades As an originator, company owner and mortgage marketer, my specialty has always been the first-time homebuyer market. I love this market for many reasons. Now, as more of my time is spent coaching and teaching other mortgage professionals around the country, my message and methods for courting the first-time homebuyer are being very well received. However, once in awhile I get some polite grumbling from my audience because in their market area, there is no such thing as a first-time homebuyer. With the dramatic increases in home prices that large areas of the country have seen over the past few years, prices in some communities have increased so quickly that there are no homes available for the first-time homebuyer. This is particularly true in many regions of California, New York, New Jersey, Arizona and southern Florida. With low-end homes starting at $300,000, there's no market for the traditional first-time homebuyer. Recognizing this, I worked with one of my students, Laurie Anderson in New Jersey, to develop a simple system for locating and going after move-up buyers. But not just any move-up buyers - we are encouraging people who are already in a nice home to upgrade to a luxury home. In many cases, we are working with homeowners who had never really considered moving up until they saw our marketing and talked to Laurie. When marketing to first-time homebuyers, it is important to keep the message simple and direct. The two primary problems that first-time homebuyers face are not having enough cash for a down payment, and having less than perfect credit. These issues are exactly what should be addressed in the marketing materials. The interesting thing I see as I speak with originators all across the country is that many borrowers in all price ranges face the same problems as first-time homebuyers - no cash and some credit issues. The problem with much of the mortgage marketing to higher-end groups is that these two issues are almost never addressed. What Laurie and I have done is create a system of identifying homeowners who have lived in areas that have had rapidly rising home prices. They've been in their home long enough to have substantial equity (at least $100,000) and are probably reasonably comfortable with their situation. Seeing this type of homeowner, the typical mortgage marketer would immediately offer some sort of refinance - rate and term, or cash to pull out of their equity. This group of homeowners has been bombarded with advertisements, all promoting some sort of refinance. If they haven't already refinanced, then they are immune to the promotions to refi now. Not us! We take an entirely new and dramatically different approach. We approach these homeowners and tell them, "Move up to a truly luxury home of your dreams with no money down" - but here's the real kicker that makes the phone ring - "and pocket all of your current equity." What we believe is that many people do not want to pull cash out of their home. They like the comfort of having equity or, even better, having cash in the bank. Many have thought about moving up to a more luxurious home, but don't want to sink all of their current equity into a new home. The desire to own a home with little or no money down is not exclusively for first-time homebuyers. Many buyers in all price ranges, even up to and above $1 million, would love to own a home with little or no cash out of pocket. We simply recognized this fact and have taken full advantage of it. Our approach is to sell this niche group of homeowners on the dream of moving up to a much more luxurious home and still having all or most of their current equity in the bank. The allure of luxury living and cash in the bank is overwhelming. Although we don't really stress this in the marketing, it is mentioned that we can help homeowners reach their dream of luxury living, even if they have less-than-perfect credit. And believe me, imperfect credit is not a problem exclusively limited to first-time homebuyers and the low-end market. We've discovered that doctors and attorneys are perfect candidates for this program. Their egos are such that moving up to a more luxurious or prestigious home is very important to them; a large number of them are cash poor and many don't have the best credit, so banking their cash equity is also important. Has marketing to this niche worked? If you looked at Laurie's response rate to her marketing, you'd immediately think it was a royal flop. She routinely only receives less than a half percent response to her direct mail pieces. She is usually only able to convert about 21-23 percent of those that do respond. Seems low, doesnt it? Well, Laurie only closes an average of 11 deals per month. However, her average loan size is $683,400. You do the math. With origination and fees around 1.9 percent, she's doing pretty well. Actually, there's really nothing brilliant here. We just took a marketing message ("own a home with little or no money down, even with less than perfect credit") that has worked extremely well for first-time homebuyers. Then, with some minor modifications and a different twist, we applied it to a different market niche. Actually, in this case we created our own niche, which, by the way, is an excellent thing to think about. But creating your own market niche is a subject for another article. Remember, nobody wants a mortgage! Nobody! Let's face it, nobody, given the choice, would want to go into debt with the notion of it taking them 30 years to pay it back. Nobody wants your mortgage program. What they want is what your mortgage loan will do for them. Regardless of the mortgage product, you are in the dream fulfillment business, not the mortgage business. That refi candidate doesn't really want the pain and hassle of refinancing. If it's a cash-out, they want what the cash will do for them. If it's rate and term, there's something they want to do with the money they won't be paying each month for their mortgage. The purchaser and move-up buyer want their dreams fulfilled. So regardless of the niche market you decide to work with, remember to focus on what that market wants to accomplish, not what you want to sell them. Working with the move-up buyers, Laurie tells me that although these are otherwise fairly sophisticated borrowers, and they've certainly been through the process at least once or twice before, most never question fees and are most often concerned with the monthly payment, but not the rate and terms of the loan. Why? Laurie and my other students around the country who are working with this market niche concentrate on selling the dream of luxury living with cash in the bank. They don't focus on offering "the lowest rates in the galaxy" or "no closing cost" or "137 loan programs to choose from." They focus on selling the dream. And selling the dream will work for you in all markets, anywhere and everywhere across the country. Except, of course, where you live! Doug Huggins is president of The Millionaire Originator GEM Inside Circle, a coaching and mentoring program for mortgage professionals. He may be reached at (866) 950-3696 or e-mail [email protected]
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