Market Showcase: Washington, DC 2010
Recently, we helped a very large lender evaluate the size and dynamics of local mortgage lending opportunities in the Washington, DC Metro Market. Our overall objectives were simple:
(1) Systematically quantify, compare and prioritize the size, density and growth speeds of the local mortgage lending opportunities within the entire metro area.
(2) Integrate our quantitative market analytics and market manager tools into the 2010-2011 business planning efforts and tactical actions of their local Regional and Branch Managers.
(3) Increase the lender's volume, share and loan acquisition efficiencies by combining our latest evidence-based trend and forecast intelligence with the intuitive experience of local managers and loan originators.
Our Market Evaluation Approach
We partitioned the entire MSA into small, detailed groups of census tracts, communities and neighborhoods. We then evaluated ten years of lending behaviors in each of the partitioned "mortgage zones," generated a unique set of market metrics and mortgage volume forecasts for each zone, and prioritized the communities based on eight different mortgage volume, density, growth and market share variables.
In addition, we mapped all of the lender's 2009 purchase and refinance transactions into a visually stunning and flexible interactive map system that not only showed all of the underlying quantitative metrics for the entire metro market, but also included "spider webs" depicting the total sales reach and overlapping market coverage of their individual branches and loan originators. Each manager was provided the interactive, user-manipulated maps.
The combination of forecast data, market metric tables, performance and resource calculation tools, and visual maps that the managers had at their fingertips instantly helped them identify glaring market coverage weaknesses. Simple user mechanisms allowed the managers to quickly learn to navigate their maps and utilize the performance planning tools embedded within the acccompanying loan forecast and data tables.
Four Initial Findings
Four of the lender's key discoveries were likely to cause serious performance weaknesses in the metro area during 2010-2011 and beyond:
1) Proximity Problems -- Certain mortgage branch offices exhibited a very wide sales reach but captured very little volume in the high-density communities in immediate proximity to their branch location.
2) Market Share Mismatches -- Purchase share was highest in low-volume and slow-growing zones. In contrast, their weakest share occurred in areas that were forecasted to generate the high volume and solid growth over the next few years.
3) Weak "Corridor" Coverage -- Their lending performance was very weak inside a long urban-suburban corridor that represented high volumes amid a wide-ranging mix of SF 1-4 housing values.
4) Poor Use of Bank Presence in High-Opportunity Areas -- Mortgage penetration rates of bank households and total market shares were low in certain zones where they enjoyed high bank presence and brand recognition.
Leadership Team Responses
> To quickly improve their market position, earnings performance and loan acquisition efficiency in the metro area, the branch managers determined that they needed to collectively tailor their lending strategies and set new performance targets to better match the profiles and lending opportunities offered in each zone.
>They also decided they needed to be more directive in assigning struggling loan officers to specific metro areas and sales teams, targeting local referral sources in the high-priority zones, and pursuing a more comprehensive set of brand and relationship-building strategies focused on local communities.
> As a result of their initial assessment, the managers have already stepped up their efforts to closely coordinate their mortgage lending strategies with their banking partners to gain greater brand leverage with current bank households and to bring more households into local bank customer bases at a much faster pace.
Competing for home buyers and loan originations in flat or declining markets is essentially a local, zero-sum game. Unstable, shrinking and shifting local markets present big performance and resource challenges. An increase in loan volume or a gain in market share in 2010 will have to come at the expense of local competitors. This will be true in the vast majority of local mortgage markets in the U.S.
Whether you're a big multi-state commercial bank, a community bank or an independent mortgage banker, your ability to integrate quantitative, evidence-based analytics and future market trends into your 2010-2011 local lending strategies will be crucial to your future success.