The tension between the Hispanic population and the new administration is reaching its boiling point. And yet, President Donald Trump’s initiatives could be the best thing that could happen for Hispanics working toward homeownership.
Here's how that would work.
Trump repeatedly states his intent for less regulatory standards, including his plan to “dismantle” the Dodd-Frank Wall Street Reform Act, which could give lenders more freedom to originate loans outside traditional qualified mortgages, and perhaps, extend more lines of credit to the Hispanic population.
This would boost an already existing housing and mortgage finance trend to reach more Hispanics. This trend also runs parallel to recent efforts to improve access to technology for a younger, more diverse pool of potential homeowners.
And at this point, every little bit helps of course.
The current homeownership rate in the U.S. currently rests near a 50-year low, according to the U.S. Census Bureau. And while the homeownership rate for every other demographic is decreasing, the rate for Hispanics is increasing.
In fact, the Hispanic homeownership rate accounted for 74.9% of the total net growth in the overall homeownership rate in the U.S., according to a report from the National Association of Hispanic Real Estate Professionals.
Even a recent report from the Urban Land Institute’s Terwilliger Center for Housing shows immigrants from all over the world not only shaped the recovery after the Great Recession, but will also continue to shape growth patterns for decades to come.
The homeownership rate among Hispanics increased from 45.6% in 2015 to 46% in 2016, according to NAHREP’s report. This is compared to the national rate which decreased from 63.7% to 63.4%, the homeownership rate for whites which remained flat at 71.9% and the rate for blacks and Asians which both decreased one percentage point during the year to 42.2% and 55.5% respectively.
So while Hispanics account for the majority of the growth in homeownership, the share of Hispanic homeowners still lags behind most other demographics. And while there is a strong desire among this demographic to own a home, there are several obstacles within the lending process that makes it difficult.
FINDING THE RIGHT FIT
One of the first obstacles is the ability of the loan officers to connect with the population. While many lenders think they need to speak Spanish in order to reach the Hispanic community, this is actually not the case.
“In-language materials are a ‘nice-to-have,’ as the majority of Millennial Hispanics are bilingual however cultural fluency is even more important,” Tanya Reu-Narvaez, Realogy senior vice president of human resources and diversity outreach, said in an interview with HousingWire.
And other experts agreed understanding Hispanics culturally is key to breaking in to the growing market.
“Understanding the cultural differences is imperative for the success of lenders,” Patricia Arvielo, New American Funding president and co-founder, told HousingWire. “Identifying the uniqueness of this segment and providing solutions through products that fit their needs is the first step to increase homeownership in America.”
“As lenders, we must understand that by 2020, 60% of new homeowners in America will be Latinos and use this opportunity to educate our potential consumer of the resources available to them,” Arvielo said. “In addition, to understand and serve, we must be in their communities, our leadership should reflect those we serve and intend to serve.”
And indeed many Hispanics don’t fit the traditional mold lenders use to determine if a homebuyer is approved for a mortgage.
“Files can be a bit more document intensive – the way Latinos bank and track finances is different from non-Latinos, as well as the family structures are very different, which leads to a high percentage of manual underwriting,” Arvielo said.
“That leads to more risk, so you have to be confident and educated to underwrite these loans,” she said. “You cannot simply press a button hoping Latinos fit in a box, instead you have to create the file manually and sustainably.”
Other experts agreed, pointing out that certain policies are too restrictive for Hispanic communities which don’t always follow the traditional mold.
“Although Hispanic homeownership has grown the past two years, housing policies still remain too restrictive for much of the Hispanic community,” said Dave Stevens, Mortgage Bankers Association president and CEO.
“We need to continue refining current mortgage regulations and address FHA reform in order to allow lenders to better and more safely serve more qualified borrowers who may have nontraditional credit profiles,” Stevens told HousingWire. “That’s an important part of building intergenerational wealth in families and it’s essential to the health of the American Dream.”
DEREGULATION IS A STEP IN THE RIGHT DIRECTION
Stevens went on to explain that regulations such as the Qualified Mortgage rule are too restrictive. While the system may work for more traditional American families, it was not created to blend with the Hispanic culture.
“Credit availability remains below the historical norm and current housing policies keep too many qualified lower and middle-income families out of the housing market,” Stevens said. “Some policies, such as the QM rule, apply regulations that fit only one type of household and family structure, rather than the diverse household and family structure of today.”
“For instance, some underwriting policies don’t account for families that may have multiple incomes or those who may not have developed a traditional credit profile and that can directly impact Hispanic families,” he said.
What is the true problem with lending to Hispanics? Why don’t they fit the traditional mold? There are several reasons. The first is simply that many of them are younger. In fact, nearly half of all first-time buyers are Hispanic, according to NAHREP’s 2016 State of Hispanic Homeownership Report. And in a session in the 2017 Housing Policy and Hispanic Lending Conference, NAHREP Executive Director Marisa Calderon explained that about 60% of Hispanics are Millennials or younger.
“They want the convenience of technology, especially mobile technology, tend to have a significant amount of student debt, which makes qualifying for a loan somewhat challenging in today's market, and also need the same sort of hand-holding that other first-time homebuyers require,” Ten-X Chief Marketing Officer Rick Sharga told HousingWire.
But their age isn’t the only challenge to homeownership. In fact, it may be the least concerning factor as the market is already working towards more homeownership education, low down-payment
Hispanics also skew very heavily towards entrepreneurship, which sometimes poses challenges for income verification. And there are a higher than average number of multi-generational households, which makes underwriting a bit more complex.
Lending to Hispanics can be very complex and even restrictive since they don’t meet traditional molds.
Quicken Loans Executive Vice President Pete Carroll explained in an interview with HousingWire that many lenders are weary about creating loans that fall outside the qualified mortgage scope, and that the lack of clear guidelines from the Consumer Financial Protection Bureau makes originating these loans even more difficult.
In addition, investors are hesitant to invest in loans they are unsure of, since they buyer can not only sue the lender, but the investor as well, Carroll explained.
So what is the solution for originating creative loans to reach this non-traditional population? That is where Trump comes in. Deregulation.
According to Carroll, less regulation, or even more specific guidelines from the CFPB could go a long way towards helping Hispanic homeownership rates.
He emphasized that lending to this non-traditional or even credit invisible population is not risky, since if they had defaulted on a payment it would show up on their credit report, and they would no longer be credit invisible. Therefore, it is not a matter of taking on more risk, but rather, changing the product offerings.