Mortgage Lessons from San Antonio: This Resilient Texas Market Has Unique Characteristics That Can Provide a Roadmap for Success to Mortgage Lenders

Article excerpt

When people talk about the growing state of Texas, the conversation often focuses on Houston, Austin or Dallas. Often overlooked in that conversation, however, is San Antonio, which is the state's second-largest metropolis and the seventh-largest city in the nation, according to the 2010 U.S. Census. In fact, from 2007 to 2008, it was the nation's fifth-fastest-growing city, the San Antonio Express-News reported in July 2009. * Today San Antonio continues to grow, and seems to be recovering from the recession fairly well. Of greater interest to mortgage lenders nationwide are some of the city's unique traits--traits that helped the city survive the recent economic downturn. * Such traits can also be powerful indicators of the best metropolitan markets nationwide for mortgage lenders to target in the coming years. Indeed, although San Antonio (like all cities) did have its struggles in the post-housing boom economy, it has nonetheless proven to be one of the more recession-resilient communities in the nation. It is not a stretch to suggest that San Antonio is positioned for a quicker and even more sustainable housing recovery than many. Let us consider the reasons for this, as they may be hints for mortgage lenders of all sizes to consider as they target new markets for expansion.

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A growing demographic

The graying of the baby boom generation will likely mean a sizable collective downsizing for the largest generation in the U.S. housing market. It may well result in fewer and smaller mortgages as well.

Even with the considerably smaller Generations X and Y entering their prime purchasing power now, lenders will be facing a smaller market for mortgage products. This, in turn, will force originators to seek new markets--geographic and perhaps demographic as well.

One rich source of new business may ultimately come from the influx of new Americans. The United States welcomed 1,042,642 legal permanent residents via immigration in 2010, according to March 2011 data from the Department of Homeland Security's Office of Immigration Statistics.

All indications are that net migration rates will only increase in the next decade. San Antonio is no exception. The Federal Reserve Bank of Dallas suggested in October 2005 that San Antonio will grow from a Hispanic component making up 50 percent (in 2000) of its entire population to 61.1 percent by 2040. The result is that more foreign-born people will be seeking homes here (whether directly via purchase or indirectly via rental) than ever before.

What does this mean for mortgage lenders as they enter new markets--and reconsider their existing markets?

For starters, markets (such as San Antonio) that are vibrant with immigration will be ripe for mortgage products, whether commercial, multifamily or traditional residential. In such markets there will simply be greater demand for housing.

This transformation also means that lenders may need to reconsider their product mix and how they take their product to market. Those making faulty assumptions in their marketing strategies about their new customers' preferences (without considering a demographies specific culture) may be in ior an unpleasant surprise or two.

For example, multifamily housing should play a significant role in the housing market for the foreseeable future, no matter how strong or weak the nation's overall economy is.

Additionally, lenders that wish to reach the most promising markets will likely need to reconsider or retool their underwriting processes and standards. New Americans with little credit history will still be seeking housing. Judging the creditworthiness ol these customers may not be an easy task using traditional, credit-score-based methods.

As the more traditional generational demographics shrink, those mortgage lenders able to generate reliable new ways of measuring risk will be the ones with early access to the most promising markets. …