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When Opportunity Knocks: Hispanics: Mortgage Customers of the Future (November 2003)

INDEPENDENT BANKER
NOVEMBER 2003


When Opportunity Knocks
Hispanics Mortgage Customers of the Future

by Ruth Suarez Zane

Hispanics comprise the fastest growing minority group in the United States, and the youngest. According to the U.S. Census Bureau, the Hispanic population rose 4.7 percent between April 2000 and July 2001, from 35.3 million to 37 million. Projections based on the 2000 census data pegs the Hispanic population to surge to 22 percent of the total population compared with 9 percent in 1995.

Perhaps more importantly, this largely untapped financial market carries large purse strings. The Selig Center for Economic Growth at the University of Georgia estimates Hispanic purchasing power in the United States will jump 89 percent between 2000 and 2007 from $491 billion to $926 billion.

Yet, despite their growing numbers, many of these individuals-a number of them immigrants-continue to go unnoticed and largely underserved by traditional financial institutions. Language and cultural barriers in addition to an inherent distrust of any banking system, tell part of the story.

“Hispanic homebuyers are a major segment of the overall market, they are not just a niche anymore,” says Gary Acosta, president of the National Association of Hispanic Real Estate Professionals. “To win these customers, banks need to train a professional base that has the skill set to work with these customers.” (See story on the ICBA-Travelex remittance program.)

Fortunately, the tide is slowly turning. As immigrant Hispanics fan out to smaller communities throughout the United States, community banks are beginning to tap this market. “Targeting Hispanics effectively is the future of the business, and if banks intend on staying in a leadership position they will have to find a way to reach these customers, and they’ll need to have relevant products to do so,” Acosta says.

Understanding credit issues may mean community banks need to toss out previous assumptions on customer ratings, he says. Credit scores among Hispanics, for instance, do not always follow in sync with traditional scoring signals. According to the National Association of Hispanic Real Estate Professionals, 25 percent of Latino adults have no credit score. “It’s not an issue of bad credit,” Acosta says. “We’re looking at a cultural issue, in some countries it is a source of pride to say you owe no one anything. And there are those who live in a cash society because of poor experiences south of the border.”

The Credit Network, a nonprofit debt counseling organization, offers applicants credit reports translated into Spanish, a tool Cheryl Kenney, vice president at the association, says banks find very helpful in establishing a strong comfort level from which to build on in the financial literacy process.

While the Credit Network is focusing on translating these documents into Spanish for Hispanic prospective homebuyers, they are just one piece of the immigrant population that the organization hopes to assist. The Credit Network plans to expand its translation services to include other languages in the future and has recently forced a relationship with the National Hispanic Mortgage Broker’s Association.

Breaking Through Barriers

Overcoming the language barrier may seem like a no-brainer to some, but few banks have personnel in place that can discuss financial issues with customers in Spanish. Reaching out to Hispanic customers not only means translating lending information, but making available loan officers fluent in Spanish from the beginning of the loan mortgage process to the end. Successful endeavors could very well lead to additional loans and financial services, experts suggest.

Forth Worth, Texas-based Southwest Bank is one community bank that sees this market’s potential and is reaching out. Southwest Bank increased its customer base by an estimated 10 percent in the past year by serving its surrounding Hispanic community with mortgage incentives. The bank implemented well-researched strategies into developing the incentive program, says Mark Sosa, a Southwest Bank mortgage loan officer who launched the service 18 months ago.

“We made sure that on the onset, the customer was aware of their payments, what they needed to do and how to approach us with any questions,” he explains. “This certainly was new to us and probably not a typical product that a real conservative bank would do, but we used as a model another bank that since the mid-90s has tripled its business from targeting its community’s Hispanic base.”

And in applying Hispanic customers become knowledgeable in how a mortgage loan and other loans work. “Approximately 40 percent of these new customers under our mortgage incentive program have applied for other types of credit and acquired them,” explains Alma Marquez, assistant loan officer at Southwest Bank.

“We’ve really been out in the community, providing people with information and backing up our promises,” Marquez says. Bank employees not only act as interpreters for Spanish speaking customers but also serve as a resource for these individuals who may have questions about a particular product or service. “We assist them with mortgage issues along with questions they may have about property taxes and home insurance issues,” explains Marquez. The bank has even had customers bring in correspondence that they don’t understand. “We try to help them out with what’s in front of them.”

Reaching Prospects

Community banks hoping to tap into their region’s Hispanic community base can find them via a variety of venues. First, community banks should look into developing alliances with groups that influence prospective customers such as language schools, churches or cultural organizations.

A community bank should also consider inviting prospective customers to an informational workshop, where their questions and hesitations in involving themselves with financial institutions can be resolved. The key to reaching these customers initially is for community banks to position themselves where the customers are most likely to be. Because Hispanics also tend to be younger in age and have more working adults living in one household makes building a reputation through word-of-mouth banking all the more important.

Southwest Bank has attracted customers through a number of venues, says Marquez. Some have been referred to the bank via other community agencies, while the bank has sparked interest by attending Hispanic health fairs, fiestas and Spanish-language brochure mail-outs and signs. Others make their way to the bank based on the recommendations of existing customers.

Reaching a new customer base that brings with it new challenges also may mean rethinking standard business practices, experts say. For instance, most banks enforce a rigid list of acceptable documents required to open an account, a problem in the immigrant Hispanic community where lack of “acceptable ID” is sometimes prevalent.

Southwest Bank circumvented this problem by enhancing its list of accepted documents, allowing for varying circumstances, without putting the bank at risk. Three acceptable proof of payment history at the bank are:

  • A utility bill demonstrating payment over 12 months;
  • Canceled rent checks or a letter from someone stating a rental relationship (for shared rental contracts); and
  • Insurance or other proof of monthly payments.

Southwest Bank is also starting a quarterly mailing for its customers, educating them in the different ways in which they can help themselves financially. The bank also offers customers workshops at the beginning of the year on homestead exemptions, providing a question and answer session.

“Several of our new Hispanic customers are now SBA clients,” Marquez says. “We want to help customers, and our marketing strategies are definitely giving us a competitive edge. Being a smaller bank and knowing your customers is extremely important.”

Ruth Suarez Zane is a free-lance writer in Hoboken, N.J.




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