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Try on a Mortgage Niche: Narrowing Your Focus Can Open Doors to New Opportunities

Try on a Mortgage Niche: Narrowing Your Focus Can Open Doors to New Opportunities

“If you try to market to everyone, you’ll market to no one.”

This modern adage has become the foundation of a successful marketing strategy for many of today’s financial institutions. Specializing in a certain niche can provide mortgage loan originators and servicers alike with a sharper competitive edge. Identifying an ideal niche, whether it be audience-specific or product-specific, can improve the customer or member experience and increase the financial institution’s profitability. Staff who are experienced in offering the unique products or interactions the borrower is seeking can deliver a more seamless, informed and all-around positive borrower experience. Finding a niche also helps financial institutions generate more income and reduce costs. The more focused allocation of resources leads to the quicker optimization of processes that result in more efficient origination or servicing, saving the institution time and money.

There are many niches for financial institutions to fill—whether they’re geographical, catered to certain types, or anything in between. To find the niche they’ll best be able to serve and that will best serve their business, financial institutions should first consider both their specific borrower market and business expertise.

Geographic Niches

As their name suggests, geographic niches serve borrowers in a particular geographic area. For example, there are many state and regional banks, credit unions or mortgage companies that already have a built-in business niche: that of the particular state or region of the country where they’re located.

Geographic niches can be beneficial for borrowers who prefer in-person, face-to-face interaction with their mortgage loan originator or servicer. Borrowers will be in close proximity to a physical branch, and they may also receive more attentive, personalized service from local financial institutions that generally have a smaller customer base than large national institutions.  Mortgage professionals marketing to a certain geographic niche may also be more informed about the local trends and legislation influencing their specific states, further solidifying their relationship with potential borrowers within their area.

Consumer Niches

Many financial institutions specialize in consumer niches that market to a particular group of customers. Perhaps the most clear-cut example is credit unions that have a field of membership that makes up their specific niche.

Consumer niches can provide lenders and servicers with a competitive edge through their customer- or member-centric nature. With this business model, the primary goal is to serve a specific group of customers, often resulting in friendlier and more personal service that heightens borrower engagement.

First-time homebuyers (technically, people who haven’t owned a home in the past three years) can be a particularly lucrative niche. First time homebuyer programs offer low (or no) down payments and/or financial assistance to cover closing costs. In the 3rd quarter of 2017, first time buyers accounted for 56 percent of all purchase mortgages financed—467,000 home sales were financed for first time buyers. A greater supply of low down payment mortgages has made it easier for new buyers to enter the real estate market. During the 3rd quarter, 78 percent of first-time homebuyers used a low down payment mortgage product. 

Philanthropic Niches

Some mortgage business niches serve the interests of a particular area or community, making them philanthropic in nature. While philanthropic niches often have a geographic or consumer component as well, what sets them apart is that they also have a mission to give back to the community or group of people they serve.

For example, housing agencies in various states offer housing programs to certain areas to help develop, preserve or sustain that area. A specific example would be the Housing Authority of the Cherokee Nation, a housing agency with a mission to provide decent, safe and sanitary housing to the Cherokee people, offers housing rehabilitation, new construction opportunities and other products meant to build up that community.

Affordable housing programs can benefit lenders as well as borrowers. Smaller banks around the Twin Cities area offer Minnesota Housing Finance Agency (MHFA) mortgages, providing low-interest, 30-year loans to first-time homebuyers with low to moderate incomes. Although these loans may be less profitable than other loan products, lenders gain grateful, loyal customers who may return 5 or 10 years later when they’re ready to buy their next house. 

Product Niches

Lastly, product niches are perhaps the most common type of financial institution niche. This niche is defined exclusively by the product and services the financial institution offers. For example, some financial institutions may specialize in offering certain types of special interest loan products, such as short-term loans, vacant land loans, investment property or rehabilitation loans.

Oftentimes, product niches cater to the borrower, since they offer specialized solutions to make loans more realistic for borrowers. Many types of specialized loan products offer alternate financing options so that borrowers can increase their purchasing power.

Some niches offer loan products that may be the only viable solutions for borrowers who have filed for bankruptcy, had a lender foreclose on their property or experienced another financial crisis. Nationwide, more than 400,000 people filed for bankruptcy in the first six months of 2017. A consumer with a credit score of 780 would lose 220-240 points off their credit score for a bankruptcy, for a resulting score of 540-560 that makes it difficult to obtain a mortgage loan through traditional channels. Nationwide, there were 424,800 properties in foreclosure in the first six months of 2017. A foreclosure results in a drop of 140 – 160 points for someone with a 780 credit score. Companies lending for these product niches can be highly specialized to a sole business area, such as lending for delinquent property taxes, or to consumers with a recent bankruptcy or foreclosure wanting to buy a house. Borrowers will often shoulder additional costs, since lenders specializing in delinquent type niches may portfolio the loan, use private investors and have higher rates to absorb the credit risk. This niche also applies to servicers who specialize in servicing delinquent portfolios or loans for borrowers with past financial difficulties.  

Specializing in a particular niche allows financial institutions to tailor their marketing efforts to a more targeted customer base, geographic area or product need. The more focused allocation of resources and expertise will help them not only initially attract customers seeking experts in certain areas but also retain customers by being better able to serve their needs. With some strategic consideration of its business strengths, nearly any financial institution can find its niche market to achieve greater business success.

 

Susan Graham is president and chief operating officer of Financial Industry Computer Systems, Inc. (FICS®), a mortgage software company specializing in cost-effective, in-house mortgage loan origination, residential mortgage servicing and commercial mortgage servicing software for mortgage lenders, banks and credit unions.  FICS’ software solutions have been architected to take advantage of the Microsoft® Windows® platforms using Microsoft® .NET Framework and provides customers the flexibility to choose an in-house solution or cloud solution.


Published in Scotsman Guide, February 2018 

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