Freeze affects mortgage DM
Mortgage Direct mailers are bracing themselves for yet another switch in marketing tactics, due to President Bush's announcement last week of a plan to freeze mortgage rates on some sub-prime loans. Treasury Secretary Henry Paulson met with officials of the Federal Reserve Board, other US financial regulators along with top Wall Street and home mortgage executives before the plan was announced.
While several big-name mortgage lenders such as Ameriquest went out of business this year, taking millions of pieces of mortgage-related direct mail out of the pipeline, many surviving firms switched tactics from focusing on adjustable-rate mortgage (ARM) loans to offering fixed-rates loans to holders of ARMs. Now that ARM rates are freezing, they are going to have to switch gears again and some may go out of business, said Adam Hause Sr. president at V12 Group, which provides marketing services for mortgage lenders.
“The government is stepping in and providing some stability, but ‘is it enough?' is a question I hear asked a lot,” Hause said.
However, because there is less competition than just a few months ago, some mortgage lenders are finding that “response rates are starting to come around to where it is valuable to mail again,” said Tom Emmerson, VP of Direct Group LLC's mortgage marketing division. Companies that were mailing 500,000 pieces at the beginning of the year dropped down to 50,000 over the past few months, he said. Now, they're starting to increase mailing quantities again, although, he added, “we're not even close to the half-million point.”
According to Mintel Comperemedia research, the number of mortgage direct mail offers declined 62% in the third quarter compared to the same period last year. Also, during the same time frame, 22% of all offers were for adjustable-rate mortgages — the ones being addressed by Bush's plan — while last year at this time 56% of offers were for this type of loan.
“The companies that have cash are trying to market aggressively,” agreed Randall Putala, president at Strategic Direct Marketing Inc.
However, while companies may be getting plenty of inquiries, the majority of people responding don't have sufficient credit to be approved for a loan in today's climate. As a result, the cost per acquisition has recently increased dramatically.
“For every 10 people who need help, only one will be approved for a loan,” Putala said.
The current mortgage crisis has increased scrutiny on mortgage marketers.
“We as an industry need to be careful with what we do,” said Adrea Rubin, founder of Adrea Rubin Marketing & Management Inc., whose company specializes in financial services. “Consumers are having problems; let's help them by educating them and making sure we're talking to the right people.”
Rubin added that mortgage lenders also need to be sure that they are mailing offers that consumers can understand and can pay.
In fact, marketing services providers report that more lenders are increasingly targeting consumers with good credit for Fannie Mae and Freddie Mac approved loans. As a result, according to Hause, marketing strategies are shifting to focus more on Internet-generated leads and live transfers than on direct mail.
“The borrower with good credit is inundated with direct mail to begin with, so he or she is more likely to fill out an Internet application,” he said.
In a live transfer, V12 Group gets the borrower on the phone and transfers him or her directly to a loan officer.
Putala adds that, for those that are continuing to mail, the list selection has to be much more refined. One reason for this is that there are different income caps in every state for many of the loans being offered right now.
“Data has become so important,” The Direct Group's Emmerson agreed. “Before, you could mail anybody anything. Now, it is going to require information-rich communication and that is something direct is really good at.”
Another strategy gaining popularity right now is the trigger lead, according to Putala. When someone applies for a loan and a bank pulls a credit report on the applicant, the credit bureau will send that information to other lenders, who will quickly send the applicant a better offer at the last minute.
“There has been some call to ban this practice,” because the mortgage bank has put all the work into generating the lead only to have it taken away, Putala said.
Consumer advocates, however, say the consumer wins because they get a lower price.