So, we are in the midst of mortgage hell here in the U.S. The facts are nasty. The sub-prime loan industry has collapsed. But this has just started. Now the Alt-A loans are going down, and this has a much greater potential impact. Why, you say? $400 billion worth of Alt-A loans were packaged into bonds during 2006 alone. 10% of those loans in 2006 shared sub-prime characteristics. $200 billion of the $700 billion Alt A loans currently outstanding are backed by option ARM bonds. Alt-A loans account for 25% to 50% of Moody's recently increased loss projections (source: Moody's).
The Alt-A loan is a step above sub-prime, and a step below "A paper" given to those with the best credit. Often those who qualify for an Alt-A loan do not have all the background paperwork to qualify for an A loan. Analysts at Credit Suisse estimate that 60% of Alt-A applicants lie on their income to qualify.
So, what does this have to do with marketing? A ton. Customers are making runs on Countrywide Home Savings to get their money out of the bank due to the loan issues. This is all about TRUST. I believe there is an opportunity for banks to present themselves in a much more transparent way to build this trust. Before the credit card industry diluted the value of being a "platinum customer", the concept was brilliant. Only the best could qualify. If you had that card, people knew you were rock solid. Why not take a page out of that book?
I believe a bank could take the high road and capture the cream of the market. The should publish the average credit score of their clients. They should promote the stability of their portfolio from default. They should tout the quality of their screening and application process. They should charge a slightly higher fee for additional "platinum" services they provide to their clients - but lower rates because of the statistical lower rate of default of their clients. It should be the Mercedes Benz of Mortgages - not for everyone, but not for just the top 1% either.
I have found it amazing during my own house buying and selling processes that this is not done. The big banks like Wells Fargo and Bank of America are too stuffy and homogenized. The other players such as Countrywide, Indymac, Capital One and Wachovia have no real brand strength or clout beyond being just big and basic. The online folks such as Lending Tree are about being cheap. Why has not anyone taken a position of being the premium player versus the best of the rest?
Right now the spread between the traditional conforming30 year mortgage and the 30 year non-conforming (A.K.A. the "jumbo loan") is incredibly wide. This makes absolutely no sense. Defaults are higher in the conforming space. The rate of a conforming 30 year mortgage right now is approximately 6.85% to 7%. The rate of a jumbo is approximately 7.25% to 7.5%. The rationale is that jumbo's are bigger, are not bought by the government duopoly (A.K.A. the "cartel" of mortgage lending) of Fannie Mae and Freddie Mac - and thus carry more risk of default.
The problems of default are not with jumbo loans. They are with sub-prime loans (20% default rate at Countrywide Financial) and Alt-A loans (6% default rate at Countrywide Financial). Defaults are also driven by the loan type - primarily the very risky 1 year and 3 year arms, as well as LIBOR only loans that were 100% variable. These were used by folks who had no business buying a home or were looking to flip investments and got caught with their pants down.
Also, do the math. Those who are financially well off do not buy houses with conforming loans. The limit for such a loan is $417,000. Even if you put another $417,000 down (50%) you would be hard pressed to buy a very nice home in any major city (New York, DC, LA, San Francisco,etc) - not to mention other hot areas such as Orange County, CA or Bethesda, MD. The point is, the most affluent people who have the best credit, stable income (current and potential) and lowest level of risk are being penalized with higher borrowing rates due to irrational logic.
So, again, I see a great marketing opportunity here. Several banks must rise above the fray and take a leadership angle that will cater to the premium customers. They don't have to all be jumbo loans either. But they MUST be the top 10% of the borrowing public - and they marketing around the concept must be built on the foundation of TRUST.