The Industry Needs to Get its Marketing Act Together

*The Industry Needs To Get Its Marketing Act Together*
**By George Yacik**

NEW-GeorgeY***Wells Fargo recently announced that holders of its Home Rebate credit card have earned enough in rewards to pay down $50 million in mortgage principal balances since the card was introduced in 2007. That success has prompted the nation’s largest home mortgage lender to ramp up the marketing on the card. Now, instead of just offering the card to new customers, it plans to start cross-selling it to existing customers in its $1.9 trillion servicing portfolio.

****Cardholders earn 1% back on all purchases, plus 3% back on gas, grocery, and drugstore purchases for the first six months. Once the customer earns $25 in rebates, his or her mortgage principal is automatically credited. Wells says a cardholder with a $150,000 mortgage who spends $1,500 a month on the card can knock a year off a 30-year mortgage.

****The Wells rebate card is the only such credit card on the market. Citigroup reportedly had a similar card a few years ago but has since discontinued it.

****However, Citi recently introduced a clever new niche mortgage that accomplishes the same thing, namely helping people pay off their mortgage principal faster automatically without it costing the customer a penny.

****Called an “Offset Mortgage,” the bank pays an “offset reward” each month on your savings account. But rather than actually paying out interest, the money is credited to your mortgage as an additional principal payment. The money counts as interest income and is reported to the IRS.

****The rate you earn on your savings account is equal to the interest rate on your mortgage, about 4% currently, so it’s a lot higher than any deposit account available today. And the rate is locked in for the life of the loan. The more money you have in your savings account and the longer you keep it there, the bigger the reward you get.

****In an example provided by Citi, if you have a $500,000 loan at 3.75% and $50,000 in your savings account, the bank will credit you with an offset reward of about $156 a month ($50,000 x 3.75% = $156.25 a month).

****After a successful pilot, the Offset Mortgage was rolled out to Citi customers in the New York tri-state area. Depending on how successful it is there, a bank spokesman says it may be rolled out to an even larger audience.

****These are just two examples of creativity in the mortgage industry. Unfortunately, there aren’t a whole lot more I could think of.

****Mortgage industry marketing and advertising lags way behind other areas of the bank, and has for decades. The best and most creative minds have always worked in the credit card unit, not mortgages. In fact, at Wells Fargo, the credit for the Home Rebate card probably belongs to the bank’s credit card department rather than the mortgage unit, because the bank is trying to grow its card portfolio, which is relatively small compared to its big bank peers.

****Some of this state of affairs has to do with the relative profitability of these products, or so it’s said. Historically, credit cards have been more profitable than mortgage lending, so banks feel they can afford to throw more marketing muscle at credit cards.

****But by the same token, perhaps mortgage lending would be more profitable if banks invested more money in marketing their mortgage products.

****Look at what passes for advertising in mortgages today (and has for years): sending out a piece of mail to homeowners that looks like a government check. Is that really effective? Is that the most creative thing that anyone has been able to come up with?

****Indeed, when mortgage industry professionals talk about “marketing” at all, they don’t even talk about it in the conventional sense; they’re really talking about the interaction between their “wholesale” unit and “retail.” If mortgage companies market to anybody, it’s to Realtors, not consumers, as if borrowers don’t have a role in the whole transaction.

****I well understand that mortgages are not credit cards. People get credit cards all the time and spend on them every day, while they get a mortgage a few times in their lives. Almost everybody has a credit card – or five or ten – but only about half the population has a mortgage.

****Then again, banks make a lot more on the individual mortgage transaction than they do on credit cards: on application fees, closing costs, points, etc., not to mention servicing costs over the lifetime of the mortgage.

****Likewise, if that mortgage customer ever walks away, paying off their loan and refinancing with somebody else, the servicer stands to forfeit thousands of dollars in lost income.

****With that much at stake, it would seem that mortgage companies and banks would be able to – and need to – invest a lot more money and talent in their marketing and advertising departments.