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Reverse mortgage primer

National Mortgage Professional
Aug 15, 2008

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]
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