Author Isabel Allende writes that “in Spanish, the word for retirement is jubilación. Jubilation. Celebration.” For many of us that is what we want in retirement, a chance to celebrate and enjoy the results of a life well-lived. Latino baby boomers are no different. Latinos in general represent a growing share of the population and purchasing power. Projections indicate that by 2030, more than 8.4 million Latinos will be 65 years of age or older. Yet, for many Latinos, reaching a sustainable retirement and maintaining homeownership are still difficult due to a variety of financial and cultural factors, which could leave them in situations where they are not physically safe, financially secure, socially connected, or close to support services. Reverse mortgages (hipotecas revertidas) could provide a solution to many of these concerns.
Financial Challenges
Many people rely on Social Security for most of their income in retirement, but Latinos may be unable to if they recently immigrated and didn’t contribute long enough. Other affecting factors may be that they worked in industries that don’t contribute to Social Security (like seasonal or transitory work), were self-employed, or received rental income. A growing number are also retiring without private pensions because employers have moved away from offering a guaranteed amount of income for life, in favor of 401(k) plans, which depend on what employees contribute. Very few Latinos have access to these Individual Retirement Accounts, and even if they did, they often didn’t have enough disposable income during their working years to fund them. Unpredictable factors like the loss of a spouse, caregiving and other health care issues, and family financial needs put additional stress on these limited resources. The result is that more than 60 percent of Latino seniors do not have sufficient income for retirement.
Still, many Latinos want to stay in their homes until they pass away. Homes have strong emotional connections and many are willing to sacrifice a great deal in order to age in place for as long as possible. Many prefer to completely pay off their houses and pass them on to their kids while they live in poverty. This reduced income often leads to painful trade-offs to save money and make ends meet that can be harmful to their long-term health and finances—ignoring home or car repairs, cutting medication, skipping meals and medical appointments, avoiding social engagements, and missing mortgage payments.
Cultural Challenges
Many Latinos also have cultural differences and unique histories that make it more difficult to access the real estate industry. Foremost is that a quarter of Latino clients prefer to conduct business in Spanish, and the mortgage industry does not have many fluent Spanish speaking sales staff. This means there is a lack of access to good advice and plenty of misinformation about lending in general. Loans are complicated to understand in the first place, without adding the extra difficulty of discussing terms and conditions in another language.
Secondly, currency devaluations like the Mexican Peso Crisis of 1994 and bank nationalizations during la década perdida (aka the Latin American debt crisis) have left many Latinos feeling as if they could not trust government or financial institutions to protect their wealth. The Latino housing sector was the hardest hit during the housing crisis of 2008 and further fueled this mistrust. The decrease in home values left them with less equity or without a home.
Many Latinos also have a strong connection to family, demonstrated by their heightened preference for buying multigenerational housing. This allows grandparents to watch over their grandchildren or adults to care for their aging parents. Latinos, often daughters, are more likely than the population at large to provide care for their own parents. More than 84 percent of people over 65 are coping with at least one chronic health condition, and often more as they age. What were once routine activities could become cause for concern for an aging borrower’s health and safety. A simple fall could become a life-or-death situation. This puts pressure on the younger generation to balance a work-life schedule so they can care for their aging parents.
The Reverse Mortgage Solution
Real estate professionals should be able to explain the product in a way that demystifies the process, while providing accurate information to Latino customers and their families. New American Funding’s community and real estate agent outreach through our Latino focus department, New American Dream initiative (a partnership with NAREB to increase minority participation in general in the mortgage industry), NAF360 family-centric culture, and our involvement with the National Association of Hispanic Real Estate Professionals help to achieve these goals. It’s important that those in the reverse mortgage space actively work to educate members of the Latino community about how a HECM can help them achieve financial security in retirement.
Despite the challenges many in the community face, recent surveys indicate that Latinos are especially optimistic about their finances next year and the economic mobility of their children. In fact, the highest growth in high school graduation rates was achieved by young Latinas in the last decade, which means their futures are looking bright. How can loan officers and real estate agents contribute to the economic advancement of the our Hispanic population? By increasing cultural competency, building trusted brands, and educating Latino clients about reverse mortgages, the mortgage industry can help them continue to achieve the American dream of property ownership and truly celebrate their tercera edad (golden years).
