Is it possible for mortgage lenders and brokers to run

profitable shops in today’s challenging market? Absolutely!

Fact: The sub-prime lending industry is getting tougher by the minute. Every day shops
that have been around for years are packing it up or being put up for sale. Available
loan products seem to disappear daily as Wall Street tightens underwriting guidelines.
Interest rates are creeping up and home values have become stagnant or are
depreciating in many areas across the country. On top of that, direct mail is less
responsive; Internet leads are overworked and outsource telemarketing is, well,
outsource telemarketing.

OK, enough of the doom and gloom. The good news is that the mortgage lenders and
brokers with solid, well thought out marketing plans can be profitable in 2008 and
emerge as the dominant players when the market recovers. How? By managing their
marketing efforts to the WHO, the WHERE and the WHEN of sub-prime mortgage
marketing.

Sub-prime mortgage marketing: It’s all about the WHO, the

WHERE and the WHEN.

THE WHO: When the market’s down, every dime spent on marketing has to be
concentrated on the homeowner not only most likely to respond, but most likely to result
in a closed loan. Not just any closed loan, we’re looking for healthy loan sizes and
healthy fee income.

A good marketing plan is continually testing different types of data…and each data-type
should compete against each other for more of the marketing budget. Credit data,
however, should be at the core of your marketing strategy. Why? With credit data you
are able to target the prospect most likely to respond to a refinance offer and then
convert to a closed loan after responding. Utilizing credit data, you are able to target
prospects that meet your specific underwriting criteria and, just as important, eliminate
prospects from the campaign that do not. Response ratios and conversion ratios are
dramatically impacted when credit data is utilized…directly impacting the marketing cost
per closed loan.

Credit data is becoming more and more saturated, however. Gone are the days when
you could simply select certain credit scores and homeowners with high revolving
account balances. Now, there are two main approaches to utilizing credit data; First,
custom built regression models are used to identify homeowners likely to respond to a
company’s marketing effort, and then convert to a closed and funded loan after
responding. This is done by a powerful computer program that looks closely at the
demographic and credit make-up of the homeowners that have been solicited by the
company in the past, the homeowners that responded to the effort and finally, the
homeowners that closed and funded. The program then identifies the best prospects
from the “universe” of prospects available and ranks them in deciles. The top decile is
the company’s best prospects to market to. They will be the most responsive and have
the highest conversion ratio. Decile two is the second best and so on. Marketers
expect at least a 25% lift when this type of custom model is built for their organization.
Second, savvy marketers look for prospects that have recently experienced an “event”
that makes them ripe for a refinance offer. For instance, a homeowner that recently had
a 30 or 60 day ding on their mortgage would be a strong candidate for a refinance
because they are likely experiencing a financial problem and are having trouble making
their mortgage payment on time. Another “event” would be a credit score that has been
dropping over the last few weeks indicating the prospect is getting in a financial bind.
Utilizing this type of “event” data along with modeled data not only makes the marketing
effort responsive, but the prospect is motivated to close to alleviate the financial
problem.

THE WHERE: They say more money is wasted in marketing than any other human
endeavor. I believe it. I’ve analyzed the marketing efforts of many top lenders and I’m
still surprised when I see marketers spending thousands of dollars in areas of the
country that produce virtually no closed loans. Many companies are spending millions
on their marketing efforts but can’t tell you what markets are more efficient than others.
If you want to run an efficient marketing campaign you have to know WHERE you are
most efficient. Breaking it down to the state level is a start but if you really what to get
efficient you have to break it down by market or even the zip code level. Once you do
this exercise you will find that you are spending too much money in areas that have an
extremely high cost per closed loan and not enough in areas where your cost per closed
loan is very efficient. One significant lender I analyzed was spending over $8,000 per
closed loan in 20% of his markets that were least efficient and only $400 per closed
loan in the 20% of the markets that were most efficient. Allocating more of the
marketing budget to the top markets and taking away from the bottom markets impacted
this lenders bottom line immediately. The marketer that’s on top of his game is
constantly analyzing what markets are most efficient and what markets are least
efficient and spending the marketing budget accordingly.

THE WHEN: Our industry is becoming more and more competitive. Once a prospect
becomes ripe for a refinance offer, they must be taken out of the market before the
competition gets to them. I’ve already mentioned that a 30 or 60-day ding on the
mortgage is a good indicator the prospect is ripe for a refinance offer. The time to make
this offer is as close to when the ding occurred as possible. If the prospect had the ding
three months ago chances are he has already been contacted many times over with a
refinance offer. If the ding was last week or even yesterday, you have a much better
chance of being one of the first if not the first to contact the prospect. There are several
“events” that are strong indicators the prospect is likely to respond to a refinance offer.
The closer your offer is to the “event” date, the more responsive and motivated the
prospect will be.

Successful mortgage lenders and brokers understand they have to change with the ups
and downs of the market. When the markets up the marketing budget can be spent
more liberally. When the market’s down every dollar has to be spent as efficiently as
possible. What’s most efficient? It’s the RIGHT PROSPECT in the RIGHT PLACE at
the RIGHT TIME.

About the author: Todd Lake is a previous Senior Vice President of Marketing for HomeSense
Financial, now working as an independent marketing consultant for Lenders and Brokers across the
country. You can contact him directly at 803-760-9338 or by e-mail at
todd.lake@mortgagedirectmarketing.com