Mortgage

Preparing for millions of minority homebuyers

The future is not guaranteed

HW+ housing market

Since day one of my mortgage career, my main role was to help Hispanic borrowers with responsible lending. For the past 21 years, I have been deeply entrenched in truly understanding the unique needs and cultural nuances of homebuyers with diverse backgrounds. Being an active originator helps me keep a pulse on the market and the current issues borrowers face every day on their journey to homeownership.

Minority mortgage-ready millennials

I interact daily with first-time buyers and buyers of diverse backgrounds and continue to help them achieve the dream of homeownership. In my role as national vice president of multicultural lending, I’m involved at a high level with the executive leadership team here at New American Funding, providing input regarding what is really going on at the “street-level” and being the liaison between our sales force and executive leadership.

According to the U.S. Census Bureau, there are now 60.6 million Hispanics in America. That is almost 19% of the entire US population. And according to Freddie Mac, in 2019, there were 8.3 million Hispanic mortgage-ready millennials, or as we like to call them at New American Funding, “Hispennials”. The Hispanic market presents a tremendous business opportunity now and for years to come if approached correctly. Despite the recent COVID-19 pandemic, the Hispanic homeownership rate increased to 49% in 2020, compared to 47.5% in 2019, per the National Association of Hispanic Real Estate Professionals’ 2020 State of Hispanic Homeownership Report.

According to the Urban Institute, all future homeownership growth will come from non-White households, with Hispanics accounting for 70% of homeownership growth over the next 20 years. Per Freddie Mac, in the 31 largest MSAs, there are over 1.7 million Black millennials who would qualify for a mortgage. New York City, Atlanta, Washington D.C. and Chicago each have more than 100,000 Black residents ready for homeownership.

And according to a November 2020 report released by the National Association of Realtors, 5% of homebuyers during the first three quarters of 2020 were Black, compared to 4% in 2019. Despite a 1% increase, U.S. Census data shows Black millennials raised the homeownership rate for African Americans more than 2% over the same time frame. The homeownership rate for Black Americans grew to 47% during the second quarter of 2020 compared to 44% during the first quarter.

Looking at homeownership with a wider scope, it is very clear that housing activity has helped economic growth historically, following past recessions. The role minorities play in the housing market is more powerful today than its ever been. This phenomenon of minority mortgage-ready millennials is incredibly important and should be taken very seriously.

It is critical to understand the unique cultural nuances of these “Hispennials” and Black millennials. We must take into consideration that they are still very connected to their culture and roots. Unlike non-Hispanic millennials, Hispennials still have a strong family influence when it comes to homeownership. The home-buying conversation is more common at the kitchen table with these Hispennials versus their non-Hispanic counterparts.

Understanding the needs of minority future homebuyers

It is our responsibility as real estate and mortgage professionals to be keen and understand the unique needs of these minority future homebuyers. For example, we need to fully understand the importance that sometimes family comes into play with decision-making, or the cultural nuances behind lack of credit history or savings patterns, for example.

This is why I feel it is critical that lenders maintain a hybrid underwriting practice in place. What do I mean by hybrid underwriting? I realize we are in a “push button” society where almost everything is a couple of clicks away. However, when it comes to mortgage underwriting of diverse borrowers, it is of utmost importance to not do away with manual underwriting and rely on automation and technology to decision home loans.

Don’t get me wrong. I love technology and leverage it as much as possible. But when it comes to serving the underserved and putting minority borrowers into homes, it does require more of a manual process. It’s almost impossible for a computer-generated algorithm to determine the creditworthiness of a borrower, especially minority homebuyers.

Several factors sometimes don’t get taken into consideration when underwriting minority borrowers, such as rental housing history, part-time jobs with less than 2 years history, and credit tradelines that may not be reporting on credit reports, such as payments to storage rental units, cell phones and utilities. As a result of many lenders relying heavily on technology for underwriting purposes, many minority homebuyers get left behind and discouraged.

Another important factor with increasing minority homeownership is diversity and inclusion within our organizations, and ultimately within the real estate and mortgage industries. It is crucial for lenders and real estate brokerages to mirror the communities they serve. Not only do we need our sales force to mirror the community, but our operations teams as well.

Creating internal diverse working groups is a great and effective way to create engagement and enthusiasm within your organization. Having leadership, underwriters and key operations members of diverse backgrounds is one of the keys to having success when serving underserved communities of color.

The path forward

While the outlook for minority homeownership is positive, the future is not guaranteed. We have made great strides toward increasing minority homeownership rates recently, and we are currently headed in the right direction.

Ensuring we prepare these millions of mortgage-ready millennials for homeownership is critical for the economy and will take a collective effort. We all must do our part in continuing to provide more education to these future homebuyers and make sure they become successful homeowners. I’m very optimistic and excited about these future homebuyers and their positive impact on the housing sector and our economy.

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