Marketing Insights - Mortgage and Equity

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Marketing InsightsMortgage and Equity

Q3 2015

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Merkle Commentary and POV

“The home equity market is expanding as home values rise and the mortgage market is moving to purchase and first time homebuyers. Many new players have entered the market over the past several years and redefined the online application process and customer experience. These companies possess platforms that are nimble to drive personalization and conduct frequent testing (A/B, multivariate) to dramatically increase conversion rates and provide greater efficiencies in digital marketing.

For lenders to capitalize on growing demand and compete with their smaller, more nimble counterparts, it will require playing catch-up in key technology areas. To remain competitive, lenders must build online customer experiences that match how consumers are shopping for credit today.

By continually assessing the latest mobile and online technologies, lenders are able to make the loan processes as simple and transparent as possible. Mobile has redefined what and how information is collected and is playing a bigger part in improving the customer experience through the online loan application process.”

Dan Moore Senior Director of Bank Marketing Strategy &Consumer Lending Subject Matter Expert





Total Consumer Debt Outstanding Over Time

According to the New York Federal Reserve's Household Debt and Credit report, household debt in the U.S. grew to $11.85 trillion during Q1 2015, only a 0.2% increase from the previous quarter. Household debt remains 6.5% below its $12.68 trillion peak reached in Q3 2008.

Source: New York Federal Reserve's Q1 2015 Household Debt and Credit Report; www.businessinsider.com/ny-fed-q1-2015-household-debt-2015-5

“The slowdown in growth can be attributed to a negligible uptick in mortgage balances, which are the largest component of household debt. Mortgage balances stood at $8.17 trillion in the Q1," the NY Fed noted.

"Additionally, balances on home equity lines of credit, which were $510 billion at the end of Q4 2014, were unchanged in Q1 2015."

Total Debt Balance and its Composition





First-Time & Boomerang Buyers Returning

Implications: Difficulty in finding and maintaining employment over the past several years has prevented many Millennials from entering the housing market. However, as the market strengthens, the door will open for many Millennials to pursue homeownership.

Source: “RealtyTrac June & Midyear Home Sales Data: Early Look.” Reality Trac. July 21, 2015

Through the first half of 2015, FHA loans—typically first time home buyers or boomerang buyers with low down payments—have accounted for 22% of all homes purchased by borrowers using financing, up from 19% in 2014.Single family home sales nationwide are on track for their highest year since 2006 based on current data.

First-Time & Boomerang Buyers Returning: FHA Share of Purchase Loans





HELOC Originations: Still Generating Over $30BN/Quarter

Implications: As existing homeowners take advantage of growing property values and HELOC originations continue their growth trend, lenders can stay ahead of the competition by using advanced analytics to target the right customers and increase profitability.

Source: “Experian-Oliver Wyman Market Intelligence Report Q1 2015.” Oliver Wyman. June 4, 2015.

According to the latest Experian-Oliver Wyman Market Intelligence Report, HELOC originations increased 21% year over year, moving from $25.6 billion in Q1 2014 to $31 billion in Q1 2015. HELOC delinquencies (90 to 180 days past due) continued to move in the right direction, declining from 0.64% to 0.49% over the last year.

HELOC Origination Volume Limits (in $BNs) HELOC Delinquency Rates as % of Balances





More Consumers Research and Applying Online

Source: Fannie Mae

Today, the majority of customers are doing significant online research prior to purchase, reinforcing the importance for financial institutions to integrate marketing across media and channels. Immediately capturing consumers online while they are researching, promotes conversion.

Implications: Lenders need a robust online presence, and should continue to optimize their onlineresponse channel.

Past and Aspirational Technology Use in Mortgage Shopping by Mortgage Borrower Income Group





Banks Loosening Terms for Jumbo Mortgages

Chase is lowering the minimum credit score and down payment for jumbo mortgages as big as $3 million. The move comes after similar actions by rivals such as Bank of America and Wells Fargo.

Source: "J.P. Morgan Loosens Terms for Jumbo Mortgages." Wall Street Journal. August 6, 2015.

Implications: Major banks are responding to the recovery of the high-end housing market or avoiding smaller loans that carry higher regulatory costs and litigation risks.

Chase plans to lower the minimum FICO credit scores it requires for jumbo mortgages from 740 to 680 for loans on primary single-family purchases, second homes, and certain refinances. It is allowing a 15% down payment, down from 20%, for loans up to $3 million. Chase also is lowering down payment thresholds for jumbo mortgages used for certain two- to four-unit properties.

In comparison, Bank of America and PNC allow a 15% down payment for jumbo loans of up to $1 million and $1.5 million, respectively.





BBVA Compass “Homeownership Made Easier” Program

In response to the Community Reinvestment Act — which ranks how well banks meet the credit needs of their communities — BBVA recently pledged $11 billion in loans to low- and moderate-income neighborhoods. Since a low rating could limit BBVA’s ability to make acquisitions and open new branches, it launched a program called “Homeownership Made Easier” in February to assist low-income earners with down payments and closing costs.

Source: "BBVA Compass Boosts Lending to Lower Incomes" Houston Chronicle (03/05/15) Rumbaugh, Andrea

The Community Reinvestment Act evaluates if banks are meeting the credit needs of their communities, including low-income neighborhoods. A low rating could limit a bank’s ability to make certain acquisitions and open new branches.





Wells Fargo Adjusts Marketing Strategy to Attract Minorities

After settling a class-action lawsuit claiming discriminatory lending practices in 2012, Wells Fargo has adjusted its mortgage & loan direct marketing strategy to attract Black and Hispanic consumers.

Source: Compermedia

• Campaigns showed a commitment to diversity• Offers targeting African American prospects increased at 6x the rate of total mail activity• Offers targeting Hispanic prospects trended upward at a higher rate than total mail activity• Campaigns emphasized diversity in depicting first-time homebuyers and Equity Loan/HELOC customers• Maintained lower interest rates in DMAs listed in the settlement compared to its national average

Wells Fargo used social media to appeal to minorities by promoting heritage, celebrating cultural holidays and detailing community outreach.

Twitter celebrated Diwali and Hispanic Heritage Month and promoted The Untold Stories Collection, which honors life stories of African Americans.

Its Facebook page engaged with consumers who commented on posts while also fielding customer complaints.

YouTube was the primary source for The Untold Stories Collection. Other video series included Wells Fargo in the Community, which demonstrated its Corporate Social Responsibility efforts.





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