Diversity and Inclusivity Fattens Your Profits

Studies show even small mortgage firms’ bottom lines benefit from D&I

Katie Jensen
Diversity and Inclusivity Fattens Your Profits

Let’s face it, not everyone cares about promoting diversity and inclusion. D&I experts who speak at conferences already know this — some audience members remain engaged, while others consider it to be an intermission period, getting up to go to the bathroom or refill their coffee mugs.

But the people leaving the room need to know this one statistic from a McKinsey study of 1000 companies in 50 countries: diverse companies outperformed those that are less diverse by 36% in profitability.

It’s their secret weapon. You don’t care about increasing diversity? OK, well how about money? If there was a widget that could increase your company’s profits by 36%, you would buy it, wouldn’t you? The idea is you could do the same thing at no additional cost by making your potential hiring pool more diverse.

Even in smaller teams of four to five people, having a diverse member can give you an edge over other competitors. Having a female or ethnic minority on your team — especially someone who speaks a foreign language — can help you reach untapped markets.

Of course, it’s not as easy as installing a widget. These are people who want to be heard in company meetings, feel connected with team members, and get invited to the next lunch outing. They want to feel respected and included, which is where things get difficult.

The McKinsey study that everybody quotes also reveals that a company’s approach to inclusion determines if a company gets those profits. Otherwise the needed diverse talent is lost.

Sentiment towards inclusivity is much more negative than sentiment towarddiversity. Overall sentiment on diversity was 52% positive and 31% negative, but sentiment on inclusion was markedly worse, at only 29% positive and 61% negative.

“This encapsulates the challenge that even the more diverse companies still face in tackling inclusion,” the study states. “Hiring diverse talent isn’t enough — it’s the workplace experience that shapes whether people remain and thrive.”

Before getting into talent retention, though, here’s how diversity can increase profits - even at small mortgage companies.

Sales Psychology 101

An interesting fact came out of a study from the Federal Reserve Bank of Dallas in 2022, which showed minority students tend to achieve better outcomes when taught by minority teachers and minority patients achieve better outcomes when treated by minority doctors — in both professions minorities are underrepresented. Following the same trend, minority applications handled by minority loan officers are more likely to be completed, approved, and result in loan originations than those handled by white loan officers. They are also less likely to default on their loans.

Malia Lazu, CEO and founder of Lazu Group

Loan applications from minority borrowers are about 5 percentage points less likely to result in an origination than applications from white borrowers handled by the same white loan officer, but this difference is 2-4 percentage points smaller for minority officers, the study states.

Researchers first assumed that white loan officers had stricter standards for their minority clients, but that wouldn’t explain why minority loan officers have lower default rates. Instead, researchers believe the results indicate minority loan officers have an “informational advantage” in handling loan applications from minority borrowers.

The best possible reason they could provide was that minority loan officers punish their clients less when they have a lower credit score, compared to white loan officers. Still, this doesn’t explain the difference in default rates.

It’s an interesting phenomenon, but it can be more easily understood when considering the context of the situation. Minority populations, particularly the Black community, have developed generational distrust of financial institutions. The mortgage industry has a long history of redlining and discriminatory policies. Although the Community Reinvestment Act has outlawed many of these practices, the effects are long lasting.

“The banking, finance, and mortgage industries have a dark history,” said Malia Lazu, CEO and founder of the Lazu Group and former executive vice president and chief experience and culture officer at Berkshire Bank in Boston. “And it’s hard for some people nowadays to admit because it’s changed in a lot of ways, but the effects of it have laid over for generations.”

Lazu explains how even more recent events have contributed to this distrust, such as the 2008 subprime loan crisis. In 2006, the rate of subprime mortgages for home purchase for Hispanics and Black Americans was approximately double the white rate, according to the Joint Center for Political and Economic Studies. Twenty-six percent of mortgages for home purchase by whites were subprime. For Hispanics, it was 47% and for Black Americans it was 53%.

Malia Lazu, the Lazu Group

Subprime Woes

These weren’t low-income borrowers either. These predatory loans stripped the wealth of high-income Black and Hispanic Americans. In 2006, at the height of the boom, Black and Hispanic families making more than $200,000 a year were more likely on average to be given a subprime loan than a white family making less than $30,000 a year, according to researcher Jacob Faber when he presented at the annual meeting of the American Sociological Association.

“It’s that posturing that still exists in financial services,” Lazu said. “I think what’s very important for lenders to realize is that the way they look at these communities is one of extraction.”

Social Psychologist Roderick M. Kramer, who has authored articles in Harvard Business Review, said we’re far more likely to trust people who are similar to us in some dimension. His hypothesis is backed by other researchers, such as Lisa DeBruine, who conducted a test in which she created an image of another person that could be morphed to look more and more (or less and less) like a study participant’s face. The greater the similarity, DeBruine found, the more the participant trusted the person in the image.

Although it’s very possible and highly encouraged for white loan officers to work with people outside their own community, the data shows that the results are much better for minority loan officers.

Understanding and being able to build relationships with people of a different skin color or culture is not just a nice thing to do — it’s essential for a successful career.

Understand The Differences

Most people in the mortgage industry are loan officers and brokers, or in other words, salespeople. Social skills are mandatory in this field, and one of the valuable skills to have is connecting with people regardless of their skin color or background.

“D&I makes good business sense because it allows you to be able to ensure you are accessing and connecting with all parts and all segments of the market, thus resulting in a larger market share. You’ll get more market share and more profitability because you’re reaching untapped markets than your competitors are,” Tony Thompson, founder and CEO of National Association of Minority Mortgage Bankers of America (NAMMBA), said.

At first some might think, ‘I’ll just treat my clients and coworkers like they’re white people,’ but that could be a mistake. It’s not about treating all groups the same. It’s about recognizing differences and understanding people’s cultures — that is how to hone in on marketing to each group.

Consider this quote from Tom Burrell, one of the Black pioneers in Chicago advertising in 1961. “I had to convince clients to understand that Black people are not dark-skinned white people,” Burrell said. “Sometimes when you start talking to people about race and differences, implied in that is some kind of subordination, so I had to convince them that you can be different and equal, and that there are cultural differences that should be part of advertising aimed at a black cultural group, such as music.”

Brian “Woody” White, senior vice president and chief diversity & inclusion officer at Homebridge Financial Services Inc., has been a mortgage executive for the past 30 years, and was oftentimes the only Black executive in the company. He has tried to teach his colleagues why it’s important to recognize the differences between various demographic groups, and how it can help them become better salespeople.

Learning About Different Cultures

I remember sitting in front of a local bank and their goal was to educate the community on their products and how to save money,”’ White said. “We’re in this community, and the bank is saying ‘You can put your money in a CD’ (certificate of deposit). They talked about these things, but didn’t understand the community. These are people who need their money to be liquid, they need access to it. You wouldn’t be telling them to put their money in a three-year CD. It doesn’t make any sense. So people walked away saying, ‘This didn’t help me at all.’

“That’s all a result of no diversity in planning the products,” White continued. “Nobody in the meeting understood the community and people walked out dissatisfied.”

Building More Inclusivity

What’s the best way to learn about different cultures? Start with the people working in your own office. It’s possible there may not be many ethnic minorities, women, or LGBTQ+ colleagues, but if there are, befriend them, ask questions, and honestly try to get to know them. This is why inclusivity matters. If you need to go out of your way to meet people from different cultural backgrounds, then you’re living and working in a bubble and that’s dangerous for someone in the mortgage industry.

Listen to your colleagues, employees, friends, or neighbors who are currently living in that world. If companies understand the value of listening, then they can understand the value of inclusion.

More diversity increases profitability because you can reach untapped markets — markets less-inclusive competitors are ignoring. You can learn more about these specific communities by opening up your circle.

Thompson believes that while some companies embrace diversity, they need to answer this question: Do we have the right culture in place that supports long-term retention in our organization to allow us to truly be successful?

Keep in mind this does not only pertain to large companies and organizations. Even departments and small teams have a work culture that may or may not be inclusive. Ensure that your culture, whatever it may be, is inclusive to everyone. Don’t let talented players walk out your door because they feel like they don’t fit in.

As Thomspons says, office and work culture is a major determining factor on whether diverse talents choose to stay in a company or not. Even Thompson himself, a personable and extroverted man, had trouble fitting in at some of the companies he worked for because he’s Black, which is why NAMMBA was founded.

“At the end of the day, NAMMBA was started because I didn’t feel included,” Thompson said. “The initial genesis of the founding of NAMMBA was just to provide an environment where people could come in and connect and engage and build relationships. And, and we’ve held true to the essence of that spirit, which really makes us different.”

Lazu is the woman CEOs call to fix their cultural issues. The Lazu Group provides new skill sets, models and networks necessary to create lasting cultural change resulting in more profitable businesses, better retention rates, more effective recruitment, and successful engagement with both existing and new consumer groups.

Real-Life Examples

Lazu offers plenty of real life examples of how company culture and social dynamics get tricky once more diverse talents come through the door.

In an all-male company that just recruited females into the workplace, the men begin to resent the fact their jokes have to change. They need to be more sensitive to the female workers. They have to do after-work activities that wouldn’t exclude the women. Even though company culture may not change that much, the resentment is still there.

If your employees or colleagues don’t have a positive attitude about being inclusive, then it becomes the boss’s job to make it work.

“Inclusivity, if it’s not fun, you’re not doing it right,” Lazu said. “That means making friends, right? That means being curious about the new people that are coming in. That means learning about new cultures and having fun things to do.”

Lazu says to leave behind those people dragging their feet, and build an inclusive culture without them. Forcing them to come along will only frustrate and stall progress for the rest of the group that wants to learn.

“I think the way you make it fun is, you know, you have games and actual in-person experiences,” Lazu said. “I think training is counterintuitive to building inclusion. Who wants to be trained on how to be nice to someone, right? So, I think you want to move from training to more of an educational experience, peer-to-peer learning.”

Anyone can implement Lazu’s advice and methodology into their workplace to promote more inclusivity. One methodology in particular is to keep the three L’s in mind: Listen, Learn and Love.

This article was originally published in the Mortgage Banker Magazine March 2023 issue.
Katie Jensen
Published on
Feb 27, 2023
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