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Reverse mortgage primer
Forward on reverse: Know your customer … A conversation with Julia M. LaVigne of Ribbon Demographics: Part IIAtare E. Agbamu, CRMSreverse mortgages, Julia LaVigne, Ribbon Demographics, Think Reverse
Entrepreneur and author Harvey Mackay got it right when he said:
"Knowing something about your customer is just as important as
knowing everything about your product." Demographicsthe study of a
population's characteristicscan help you know your customer better.
Understanding the demographical traits of your customer gives you
an edge in the competitive reverse mortgage market with many new
entrants hawking products. This month, we bring you the perspective
of Julia M. LaVigne, a seasoned user of demographics and owner of
Ribbon Demographics &
Housing Analysis LLC in New Castle, Colo. LaVigne has nearly 20
years experience analyzing demographics for the housing market. The
following is part two of our two-part conversation.
Atare E. Agbamu: What are some of the data sources that
you find useful?
Julia M. LaVigne: There is [a lot] of information
to be found on the U.S. Census Bureau Web site, www.census.gov, if you know how to
navigate through it. It is not that difficult. Some of it is
starting to become a little dated now, because many areas only have
2000 Census Bureau vintage data available. There is a new census
product, the American Community Survey, [which] has more recent
data for larger, more populated geographies. This will have data
available for all areas within the next few years. Many of the data
variables I am talking about, with the exception of home equity and
bankruptcy levels, are easily findable on the Census Bureaus
American Fact Finder Web site, www.factfinder.census.gov,
although they may not all be cross tabulated. If you type in
"American Fact Finder" [into] your search engine, it should provide
links that take you to the right place in the Census Bureau Web
site.
There are also a number of private demographic data companies
that provide current year estimates and five-year projections, plus
specialized data. Ribbon Demographics works exclusively with data
provided by Claritas, part of the Nielsen Company, one of the
largest data providers in the country. We commissioned Claritas to
develop specialized data for usour signature HISTA Data. Although
developed for the affordable housing industry, this unique data has
applications for the reverse mortgage industry, in that a standard
report shows the number of homeowners aged 62 and older, broken
down by their income levels and household sizes, in a given area.
HISTA includes five-year projections.
AEA: Can Ribbon Demographics, or any other demographic
data company, provide that research and analysis for a fee to an
average-size reverse mortgage lender or broker?
JML: I can't speak for any other company.
Typically, the way we work is our clients come to us with specific
requirements. The first step would be discussion between us and our
clients as to exactly what they are looking for, [and] what
question or questions they are hoping to answer through the use of
demographics. We research available data and figure out what we
could do for each client. Our work is customized. We aim to provide
analysis that works best for each client.
AEA: Say a lender wants to start a reverse mortgage
operation in a town or in a city. How can demographics help them
make better marketing and operating decisions?
JML: Before settling on a specific town or city, I
think a demographic analysis of the areas served by that town or
city would be a wise thing to do, before a lender invests in a
particular area, to ensure there is a solid potential customer base
to work around. One should do a complete market analysis, not just
demographics. There are other factors, such as competing lenders
and brokers in the area that would be vital to deciding whether to
start an operation in a place.
AEA: Does Ribbon Demographics do that kind of market
analysis for its clients?
JML: While we are well-equipped to take on
demographic analysis assignments, we have not done a full market
analysis for a reverse mortgage lender, historically.
AEA: How much would it cost a lender to do such basic
demographic research, as you suggested, from what you charge or the
services you offer?
JML: Well, our services range from just providing
a single report. If a lender wants to know how many of a particular
type of household there are in one particular area, we could
provide a simple summary report for as little as $200. One could
add many things to make it a thorough analysis of the area. The sky
is the limit on the upper end. Our fees depend on the scope. We do
everything on a customized basis, so there are no set fees.
Let's say you just want something that showed you how many
62-year-old homeowners there were in an area. We could very easily
put a HISTA report together for under $300. It would include some
basic income and household size information. I know a lot of
reverse mortgage lenders are interested in mailing lists. Once you
have determined that an area has sufficient potential customer
base, you can use typical household characteristics to develop a
highly-targeted mailing list. The more you could narrow down your
address list based on the characteristics of the typical potential
customer, the much better return on your mailing-list dollar.
For example, you have a market area of 50,000 age-eligible
homeowners. You can send a brochure to everyone and get a
one-percent response rate. [However,] if you know your customer
shares five or six additional characteristics, [and] you only send
households with similar characteristics, you may actually send out
20,000 mailing pieces, but you could get a larger response rate
because you are sending those expensive mailing pieces to people
with a better potential of responding.
If you've done your customer analysis correctly and are able to
put together a mailing list based on just those characteristics,
you should be able to get a better response rate than if you just
blanket all seniors in the area with your mailing. It can help
reduce mailing costs if you can target them very, very closely.
Claritas has long lists of the sorts of characteristics you can
build a mailing list from.
AEA: Before we wrap up, do you have any word of
demographic wisdom for our readers?
JML: What I have learned is that every area is
different. Never make assumptions about a particular market based
on another one, even though they may not be very far apart
geographically or may seem similar on the surface [for example,
bringing forward-mortgage market assumptions to the
reverse-mortgage market]. They may have some very different
characteristics. That would hold true for any market and for any
kind of product. Even though the markets can be very proximate,
they still can be completely different.
AEA: Thank you very much, Julia.
Think reverse. Move forward!
Atare E. Agbamu, CRMS, formed ThinkReverse LLC, to help
originators address demographic change via reverse mortgages. A
specialist with Credo Mortgage, a member of BusinessWeek Market
Advisory Board, Atare is the first to propose reverse mortgages as
risk-management tools for forward originators. Besides marketing,
originating, and researching reverse mortgages since 2001, Atare
has authored more than 80 articles and a book on reverse mortgages.
He may be reached by phone at (612) 203-9434 or e-mail [email protected].
About the author