Centex Home Equity - Predicting A Need (1,430 words)
Centex Home Equity Uses Database Marketing to Determine the Best Prospects for Its Products
By Alicia Orr
How does a provider of second mortgages and home equity loans find the right prospects for its products—people who are in need of ready cash but also will have the ability to repay? The answer is: by using smart database marketing to help it cost effectively target prospects most likely to generate profitable home equity loans.
That's the strategy Dallas-based Centex Home Equity Corp. has used to enable it to grow despite a tough year for some in the sub-prime home equity lending market. The sub-prime market segment, which offers loans to people with less-than-perfect credit or needing debt consolidation, experienced a tough year in 2000 with the demise of brands like The Money Store and First Plus Financial, to name a few.
"The reason why some of these sub-prime lenders got into trouble was because they were overly optimistic about the overall market's ability to support these loan portfolios. What our research has found is that you can't just target homeowners," says Steve Scruton, senior vice president for Marketing Information and Technology Inc. (MITI). "You have to match homeowners against other data in order to predict, or model, both a homeowner's willingness to borrow, and willingness and ability to repay."
Scruton and MITI, a leading provider of databases and database analysis software to formulate prospecting solutions, have been working with Centex for more than three years, to help it achieve a competitive advantage by creating a "strong" functional prospect database.
Building a Strong PROSPECT Database
Identifying the right prospects is the key to the success of Centex's direct-to-consumer marketing efforts, which are carried out through a direct sales unit and a network of more than 60 retail branches. (Centex also does business through mortgage brokers.)
"A strong database has meant a five-fold advantage in our ability to market successfully," says Rob Greenbaum, Centex's vice president of marketing. "When we solicit business from a prospect universe, there's a five times greater probability we will originate a successful response to a loan offer."
MITI's Scruton agrees that a strong database is of vital importance, noting, "The strength of the database has a marked influence on the growth of the mortgage lender." He adds, "This is an extremely competitive industry where the one with the best data and the marketing acumen to use it has a distinct advantage."
But just what is a strong database? "Fundamentally it is a database that is multi-sourced," says Greenbaum. "It takes into account that a single data provider can't be all things to all people. We view a multi-sourced database on two levels: First, no single source can bring together the highest quality of known homeowners. For that you need to bring together multiple sources of data. Second, you're going to need good demographic data and good credit data in order to build your predictive models. These data come from another source, not necessarily the same source as the home-ownership data," he explains.
All the data Centex uses in targeting its prospect universe are supplied through MITI. "They compile it from the credit bureaus, data compilers, census information and public records information such as tax assessor records and mortgage deeds," says Greenbaum.
Next, the data need to be matched together at a household level to complete the whole data set, which, Greenbaum says, gives Centex "the most robust database as a foundation for all of the direct marketing initiatives we do."
Of all the data used, Greenbaum says, the most powerful predictors of both response and risk are those obtained through the credit bureaus. "And we also look at homeowner data such as equity and length of home ownership," he adds.
When looking at whom to target with its offers, Greenbaum says it requires a careful balancing act between determining need and analyzing risk. "These are people who have a real financial need. We try to help people consolidate debt. We also help consumers who may need a first or second mortgage to obtain money for home improvements, make major purchases or buy a home," he explains.
According to Greenbaum, to remain competitive, "Financial services marketers need to be extremely cost-effective in generating new business. That's why we focus on highly targeted direct marketing using sophisticated database marketing."
The Marketing Process
Once Centex identifies its prospect universe, it prepares the files of names to be mailed or telemarketed. Greenbaum describes the process as follows:
Centex conducts prospecting campaigns every two months based on updated database information and response data maintained by MITI. Company executives look at the selection criteria on their prior marketing programs and make adjustments based on prior results to improve future performance, also paying attention to things such as eliminating the six states in which they are not licensed to do business.
Models are applied to the data set to rank order responsiveness. Records are selected based on current lead demands and business goals for the next month by branch.
Finally, the company suppresses The Direct Marketing Association's Telephone/Mail Preference Service names and any credit bureau opt-outs, as well as any names on Centex's internal company opt-out file.
Once it's ready to contact selected prospects, a multi-channel approach is used. Telemarketing is the medium of choice for most of the company's contacts with prospects, with the remaining efforts being through direct mail.
Greenbaum says of the multi-media approach, "Currently, telemarketing is more effective. It's more immediate and we can transfer prospects to a loan officer immediately if they are ready."
However, he adds, "We also use direct mail, because it is preferred by some prospective customers who don't like to do business over the phone."
Centex outsources its telemarketing efforts to mid-sized vendors that specialize in the mortgage industry. "It's not a complex script, because it's just to prequalify that there is interest," Greenbaum says, noting that once a prospect is ready to take the next step, he or she is transferred to a loan officer or can be sent more information.
The direct mail efforts Centex uses are an envelope package that includes a letter, featuring copy that gives an example of the kind of loan the person might qualify for, and several response vehicles: a BRC, an 800 number and a Web address.
The company's Web site at www.centex.com gives prospective customers a good deal of information about home equity loans, including a chart that lets people figure out approximately how much they can borrow. Centex is starting to test e-mail as a prospecting tool, says Greenbaum, but he adds it's been hard to find opt-in lists.
Follow Up on the Back End
In addition to external data sources, Centex also adds response and promotional data it's acquired through telemarketing and direct mail contacts with prospects. "Through analysis," Greenbaum says, "we can take a look at who responded and who didn't and put that into our database to create models for future campaigns."
Additionally, the follow-up information can give Centex clues for future business development: "The reasons someone declined a product might give us guidance on developing a new product," he explains.
Detailed analysis reports are run on each marketing campaign to evaluate the cost-effectiveness of the selection criteria used and the specific marketing channel. "For example, we can analyze the acquisition cost of a direct mail program compared to a telemarketing campaign or an Internet advertising test to determine the most effective marketing mix to sell our products and services."
Greenbaum adds that having desktop access to the database to perform queries and analysis is another key to successful database marketing. Besides driving marketing campaigns to generate new business, the database helps Centex run "what-if" scenarios for planning new marketing initiatives.
The database also can be used to analyze the performance of individual branch locations to create productivity standards for different marketing campaigns. Reports from the database help keep operations management informed about the latest results of each campaign.
The database even helps Centex assess the strength of the database itself. "We can take a control group, a random sample of the prospect universe," Greenbaum says, "and compare results of this non-modeled group to the results of a target-modeled group. This validates the effectiveness of our database marketing and shows a clear advantage in combining multiple data sources in a flexible data environment.
"This is one of our key marketing advantages," Greenbaum continues. "It enables us to originate new loans at a marketing cost-per-account substantially lower than the industry average."
This story originally appeared in the January 2001 issue of Target Marketing