DIVERSITY AND INCLUSIVITY FATTENS YOUR PROFITS 36%

An interesting fact came out of a study from the Federal Reserve Bank of Dallas in 2022, which showed minority students tend to achieve better outcomes when taught by minority teachers and minority patients achieve better outcomes when treated by minority doctors — in both professions minorities are underrepresented. Following the same trend, minority applications handled by minority loan officers are more likely to be completed, approved, and result in loan originations than those handled by white loan officers. They are also less likely to default on their loans.

Loan applications from minority borrowers are about 5 percentage points less likely to result in an origination than applications from white borrowers handled by the same white loan officer, but this difference is 2-4 percentage points smaller for minority officers, the study states.

Researchers first assumed that white loan officers had stricter standards for their minority clients, but that wouldn’t explain why minority loan officers have lower default rates. Instead, researchers believe the results indicate minority loan officers have an “informational advantage” in handling loan applications from minority borrowers.

The best possible reason they could provide was that minority loan officers punish their clients less when they have a lower credit score, compared to white loan officers. Still, this doesn’t explain the difference in default rates.

It’s an interesting phenomenon, but it can be more easily understood when considering the context of the situation. Minority populations, particularly the Black community, have developed generational distrust of financial institutions. The mortgage industry has a long history of redlining and discriminatory policies. Although the Community Reinvestment Act has outlawed many of these practices, the effects are long lasting.

“The banking, finance, and mortgage industries have a dark history,” said Malia Lazu, CEO and founder of the Lazu Group and former executive vice president and chief experience and culture officer at Berkshire Bank in Boston. “And it’s hard for some people nowadays to admit because it’s changed in a lot of ways, but the effects of it have laid over for generations.”

Lazu explains how even more recent events have contributed to this distrust, such as the 2008 subprime loan crisis. In 2006, the rate of subprime mortgages for home purchase for Hispanics and Black Americans was approximately double the white rate, according to the Joint Center for Political and Economic Studies. Twenty-six percent of mortgages for home purchase by whites were subprime. For Hispanics, it was 47% and for Black Americans it was 53%.

Subprime Woes

These weren’t low-income borrowers either. These predatory loans stripped the wealth of high-income Black and Hispanic Americans. In 2006, at the height of the boom, Black and Hispanic families making more than $200,000 a year were more likely on average to be given a subprime loan than a white family making less than $30,000 a year, according to researcher Jacob Faber when he presented at the annual meeting of the American Sociological Association.

“It’s that posturing that still exists in financial services,” Lazu said. “I think what’s very important for lenders to realize is that the way they look at these communities is one of extraction.”

Social Psychologist Roderick M. Kramer, who has authored articles in Harvard

Business Review, said we’re far more likely to trust people who are similar to us in some dimension. His hypothesis is backed by other researchers, such as Lisa DeBruine, who conducted a test in which she created an image of another person that could be morphed to look more and more (or less and less) like a study participant’s face. The greater the similarity, DeBruine found, the more the participant trusted the person in the image.

Although it’s very possible and highly encouraged for white loan officers to work with people outside their own community, the data shows that the results are much better for minority loan officers.

Understanding and being able to build relationships with people of a different skin color or culture is not just a nice thing to do — it’s essential for a successful career.

Understand The Differences

Most people in the mortgage industry are loan officers and brokers, or in other words, salespeople. Social skills are mandatory in this field, and one of the valuable skills to have is connecting with people regardless of their skin color or background.

“D&I makes good business sense because it allows you to be able to ensure you are accessing and connecting with all parts and all segments of the market, thus resulting in a larger market share. You’ll get more market share and more profitability because you’re reaching untapped markets than your competitors are,” Tony Thompson, founder and CEO of National Association of Minority Mortgage Bankers of America (NAMMBA), said.

At first some might think, ‘I’ll just treat my clients and coworkers like they’re white people,’ but that could be a mistake. It’s not about treating all groups the same. It’s about recognizing differences and understanding people’s cultures — that is how to hone in on marketing to each group.

Consider this quote from Tom Burrell, one of the Black pioneers in Chicago advertising in 1961. “I had to convince clients to understand that Black people are not dark-skinned white people,” Burrell said. “Sometimes when you start talking to people about race and differences, implied in that is some kind of subordination, so I had to convince them that you can be different and equal, and that there are cultural differences that should be part of advertising aimed at a black cultural group, such as music.”

Brian “Woody” White, senior vice president and chief diversity & inclusion officer at Homebridge Financial Services Inc., has been a mortgage executive for the past 30 years, and was oftentimes the only Black executive in the company. He has tried to teach his colleagues why it’s important to recognize the differences between various demographic groups, and how it can help them become better salespeople.

Learning About Different Cultures

Iremember sitting in front of a local bank and their goal was to educate the community on their products and how to save money,”’ White said. “We’re in this community, and the bank is saying ‘You can put your money in a CD’ (certificate of deposit). They talked about these things, but didn’t understand the community. These are people who need their money to be liquid, they need access to it. You wouldn’t be telling them to put their money in a threeyear CD. It doesn’t make any sense. So people walked away saying, ‘This didn’t help me at all.’

More diversity increases profitability because you can reach untapped markets — markets less-inclusive competitors are ignoring. You can learn more about these specific communities by opening up your circle.

Thompson believes that while some companies embrace diversity, they need to answer this question: Do we have the right culture in place that supports long-term retention in our organization to allow us to truly be successful?

Keep in mind this does not only pertain to large companies and organizations. Even departments and small teams have a work cultural issues. The Lazu Group provides new skill sets, models and networks necessary to create lasting cultural change resulting in more profitable businesses, better retention rates, more effective recruitment, and successful engagement with both existing and new consumer groups.

REAL-LIFE EXAMPLES

Lazu offers plenty of real life examples of how company culture and social dynamics get tricky once more diverse talents come through the door.