Mortgage lenders can expand their businesses by catering to borrowers who aren't proficient in English, but doing so requires strategic recruiting and hiring and compliance with federal and state regulations.

The potential market is huge: About 25 million people in the U.S. don't speak English well, or 9% of the country's 291 million residents, according to a November 2015 Census Bureau report.

After English, Spanish by far is the most commonly spoken language in the U.S. Of the 37.5 million Spanish speakers in the U.S., 44% don't speak English well. Chinese is the third-most-spoken language in the U.S., with 2.9 million speakers, and of that group 55% do not speak English well.

Spanish-speaking consumers prefer service from a lender where someone speaks their own language, and when they are served by a Spanish speaker they are more likely to return and to refer business to that lender, according to a recent Stratmor Group survey.

Waterstone Mortgage is one of the companies trying to help its originators capture the market, and to attract Hispanic originators. "When we look our business and where we lend nationwide and the demographics, the Hispanic market is something that we're not tapping into nearly enough," said Eric Egenhoefer, Waterstone's president and CEO.

Mortgage bankers need to adjust their philosophy to recruit multilingual loan officers and create an environment where those employees can be successful, similar to the recruiting efforts for millennials.

"The more the loan officers can feel that they are supported in their cultural outreach and they feel valued for the extra value they are bringing, then they are more likely to really latch on to the company and propel themselves forward," said Kristin Messerli, founder of Cultural Outreach Solutions, which provides consulting services to help lenders reach millennials and multicultural borrowers. That support includes targeted marketing for their clientele and providing business coaching.

In May, Waterstone Mortgage, the Pewaukee, Wis.-based subsidiary of Waterstone Bank, began working with Cultural Outreach Solutions and began implementing its sales and training program, which teaches loan officers techniques for marketing to and servicing the needs of multicultural and millennial consumers.

It is not just the size of the Hispanic market but the availability of Spanish-language documents and marketing materials from other sources that made it logical for Waterstone to start its program aimed at this market, Egenhoefer said.

For example, both Fannie Mae and Freddie Mac provide Spanish-language translations of certain documents on their websites, but they warn that these are not legal documents.

Fannie Mae's website states that "there are many legal issues involved in originating mortgage loans in a language other than English," including federal and local laws, and state laws in California, Illinois, Massachusetts, Oregon, Texas and the District of Columbia, that address marketing, negotiating and lending. The website advises consulting with a lawyer before using the documents.

The Consumer Financial Protection Bureau has Spanish-language versions of the Loan Estimate and Closing Disclosure forms on its website, including samples of completed forms.

The regulator is looking at both sides: consumers who don't speak English well who are attempting to get credit and creditors who are interacting with these consumers, said CFPB spokesman Sam Gilford.

The Know Before You Owe mortgage disclosure rule and the CFPB's mortgage servicing rules don't mandate what language creditors use. But the consumer bureau believes that "servicers should communicate with borrowers clearly, including in their native language, where possible," Gilford said.

While there is no direct federal law specifying whether English or another language must be used when discussing a mortgage loan, if lenders don't have contracts in the same language that those contracts are negotiated in, they may be raising regulatory concerns, said Gerald Sachs, an attorney with Paul Hastings.

The Federal Housing Finance Agency has been working with Fannie Mae and Freddie Mac to revise the Uniform Residential Loan Application, aiming to release it this summer and implement it in January 2018.

The agency considered putting a question on the new uniform application asking borrowers about their language preference. But attempting to resolve all the issues around this question would delay the rollout of the new form, FHFA Director Mel Watt wrote in an Aug. 1 letter to eight trade groups. The letter did not say what those issues were.

Instead, on the agency's National Survey of Mortgage Originations and the American Survey of Mortgage Borrowers, it will be asking questions about access to home financing and the servicing process for those with limited English proficiency. The FHFA will also solicit input about the best ways to gather data about borrowers who don't speak English well and the languages in which they prefer to do business.

In California, a 1976 law requires consumers to be provided with a written translation of a proposed contract if negotiations for certain types of business transactions, including getting a mortgage, are done in Spanish, Chinese, Tagalog, Vietnamese or Korean. The state's Department of Business Oversight website has the Loan Estimate translated into those languages.

In a June 2014 settlement with GE Capital, the CFPB may have provided a warning to mortgage lenders about how they should work with customers who speak a different language. In that case, GE Capital did not extend credit card debt relief offers to any customers who indicated they preferred to communicate in Spanish or had a mailing address in Puerto Rico, which the consumer bureau said was a violation of the Equal Credit Opportunity Act.

The act prohibits a creditor from discriminating against an applicant in any aspect of a credit transaction — not just in credit cards — including mortgages, the CFPB's Gilford said.

"Lenders want to serve foreign language-speaking populations; they want to serve qualified borrowers," Sachs at Paul Hastings said. "So the question becomes: How can they serve qualified borrowers without taking on extraordinary risk, in addition to the regulatory burden that they already have?" 

For Waterstone Mortgage, the extra costs are worthwhile investments if the firm can expand its customer base, Egenhoefer said. The costs include investments in marketing, compliance, education, training and hiring bilingual staffers for customer service and loan servicing,

"It's not a strategy of just hiring a bilingual loan officer," he said. "When you really understand that and dive into it, yes there's definitely an investment, but it's an investment we're more than willing to take on given the potential upside in opportunity and market share."

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