There are many essential metrics to consider when determining how to spend valuable marketing dollars. The acceptable cost per financed loan varies depending on where a person is in the organization chart and a stakeholder’s involvement in the long-term growth of the business. Successful lead generation companies are aware of this and for this reason their products are designed to cater to different segments of the mortgage professional population.
A mortgage banker will look to increase volume and can tolerate lower margins immediately sees the benefit of increasing the overall volume of leads. A cost per financed loan of $400 to $700 per financed loan is acceptable and very profitable, because the bank will earn income from the originated loan in more than one way.
There are several different ways to market a reverse mortgage. However, they fall into two basic categories: 1.) Waiting for a qualifying senior homeowner to come through your door and request the product or 2.) Marketing to the target demographic in a clear and informative manner and let you know when the product is available.
Waiting in the office warm referrals – lowest cost per financed loan
It’s easiest to rely on warm references from previous clients. In the reverse mortgage industry, this would be akin to simply expecting someone who has already reverse-mortgaged their home to go to a friend or family member and extol the virtues of the FHA HECM or private equity loan they recently received.
Ideally, they will have great comments to share about the company that provided the loan, as well as the benefits of the loan itself. In this scenario, the financed cost per loan is almost zero and the profit margin associated with the loan is high.
First, older homeowners tend to keep financial matters private and may not discuss them openly. Second, for many older people, their personal network of trusted people is shrinking rather than growing each year. Reverse third mortgages have been available for decades in one form or another and before the massive increases in home values associated with the housing bubble, which substantially reduced the loan-to-value ratio of many properties and increased available equity, very few loans were made when this was the main means of communication.
A quick visit to the FHA website or a year-by-year review of the statistics reveals that this is undeniable.
Marketing Programs: Growth-Oriented Referrals
Growth-oriented companies, particularly those with an exit strategy that includes being bought by a larger company or group of investors, will require more than just incorporation to build their businesses. Even large banks and financial institutions market heavily in the communities their agents serve.
Anyone familiar with the reverse mortgage industry understands that the eventual sale of the business entity or portfolio is a key feature of business plans. The portfolios developed by the originators of Home Equity Conversion Mortgage and Fannie Mae Homekeeper have a value in the stock market that is greater than many traditional mortgage products, because the loan itself is insured by the government for the protection of the lender and the owner. .
Marketing represents a business expense, and as long as the revenue returned exceeds the cash outlay or credit obligation, the result is positive. Marketing is one of the key components of any successful business and marketing significantly impacts the ability of the sales force to perform.
Businesses with 15 or more agents who originate reverse mortgages on a daily basis should ensure that their agents consistently receive a steady stream of leads to follow up and should make projections regarding the future performance of their sales force. A sales force without potential customers is doomed. A sales force with potential customers has an opportunity. And, a company that has a low cost per financed loan is more profitable.
The target states affect the cost per financed loan:
All states are not created equal when it comes to reverse mortgages. States like North Carolina have much less competition, while California, which has had the most reverse mortgage transactions, has the most competition. Recent changes in the traditional mortgage market and the pending financial crises that the Federal Reserve is trying to avoid have made it very difficult to work in many of the high-volume states, due to substantial changes in property appraisal values.
The challenges faced by brokers and lenders are also faced by the lead generation companies they use and prices are set accordingly. A potential customer in North Carolina or Georgia will come at a cost, because marketing companies will need to spend less to produce the type of core product the customer requires. Potential customers in California or Maryland, on the other hand, will require more marketing effort to produce. In California the cost per financed loan could easily be $800 as opposed to North Carolina or Idaho where the cost per financed loan could be as low as $400.
If your business has the ability to serve multiple states at the same time, it’s a good idea to allocate marketing expenses across states in a way that balances the total cost of your primary program with known factors, such as: Market Penetration Size, new market opportunity, average available equity for eligible homeowners, loan limits, and state legislative requirements.