Industry Insight: Expanding Homeownership to the Hispanic Market
March 28, 2017
We're focusing on the Hispanic homebuying market in this Industry Insight, the first of a four-part series on expanding homeownership to particular demographic groups.
As the Latino population in the U.S. continues to grow, what can you do to promote homeownership to this burgeoning market?
When the U.S. Census Bureau breaks out homeownership rates by race and ethnicity, Hispanic households are the only group whose rate has risen in the past couple years. Gary Acosta, co-founder of the National Association of Hispanic Real Estate Professionals (NAHREP), points out the change from 44.5 percent in Q4 2014 to 46.7 percent in Q4 2015 – a jump of 2.2 percentage points. That's the largest one-year spike in more than a decade.
Growth in the actual number of homeowners is even more impressive, since the U.S. Hispanic population continues to grow. That is, with both population and homeownership rates rising, Acosta says, "In 2015, Hispanics achieved a net increase of 245,000 owner households, accounting for 69 percent of the total net growth in U.S. homeownership."
Impressive indeed, but NAHREP also underscores the challenges that Hispanic households still face in achieving homeownership. In fact, both non-Hispanic White (over 71 percent) and Asian or Native Hawaiian/Pacific Islander (over 54 percent) consumers far outstrip the Hispanic homeownership rate.
NAHREP has noted access to affordable mortgage credit as one of the primary obstacles to homeownership among Hispanic households. (Similarly, access to credit is one of the prevailing obstacles to prospective African-American homebuyers – a group we discuss in the next article in this series.)
"Narrow definitions of creditworthiness make it especially difficult for minority and first-time borrowers to quality for and obtain a mortgage," Acosta explains. NAHREP is calling upon government regulators to address this disparity. Other obstacles that NAHREP cites include:
- New regulations – NAHREP believes that the 2015 rollout of TRID (TILA-RESPA Integrated Disclosure) produced ramifications that have deterred homeownership expansion. "While well intentioned," Acosta says, "the implementation of these disclosure changes has already increased the average time to close by ten days, and could have other unintended consequences."
- Low housing inventory – With access to affordable single-family properties shrinking for owner-occupant homebuyers, NAHREP has called for federal asset disposition programs to implement changes that would benefit these homebuyers. Acosta wants such changes to promote community development and opportunities "to build generational wealth in Hispanic and other diverse communities."
- Immigration status – Permanent legal status for the 11.2 million undocumented individuals who already live and work in the U.S., Acosta believes, would "allow these immigrants to fully participate in the economy, including homeownership." NAHREP is advocating congressional action to address a road to citizenship, deportation relief and immigrant and non-immigrant work visas.
At NAHREP's 2017 Housing Policy & Hispanic Lending Conference, Freddie Mac's Dave Lowman, Executive Vice President, Single-Family Business, joined a panel of experts to discuss ways to expand credit availability in the evolving marketplace – including low- to moderate-income homebuyers.
As a starting point for community lenders who wish to expand homeownership among Hispanic households, Acosta recommends involvement in community outreach and education. NAHREP research has shown:
- 45 percent of consumers think a "good" credit score is over 780.
- 70 percent of adults are unfamiliar with down payment assistance programs.
- 36 percent think a 20 percent down payment is always required to purchase a home.
As they become a more integral part of minority communities through outreach, local lenders have a great opportunity to dispel these misconceptions. Other community-building activities that NAHREP recommends include:
- Community "Inreach" – Making communication a two-way dialogue, lenders will improve their ability to help Hispanic households by engaging with the Latino community to understand its needs. "By 2060, it's projected that Latinos will make up 30 percent of the U.S. population," Acosta reports. "The need is for culturally competent professionals" to understand and serve these communities, he says.
- Relevant products – Acosta recommends that lenders think in terms of important mortgage product features that will meet the needs of minority borrowers. Such features include higher debt-to-ratio (DTI); non-traditional credit; acceptance of lower credit scores; flexibility regarding collateral; new metrics to determine capacity; and high loan-to-value (LTV).
- A personal touch – "Connection is made with the person, not the product or brand," Acosta cautions. He advises lenders to be creative in developing such connections. "There are no shortcuts in developing close, personal, protected relationships," he adds. He advises lenders to patiently invest the resources needed to become a trusted advisor within the community.
About NAHREP's motivation to promote home purchases, Acosta explains, "We believe that homeownership is the gateway to the middle class." He adds, "We refer to ourselves as an economic empowerment organization – focused on improving the quality of life for Hispanics in America."
For additional insight into how to expand homeownership to the Hispanic market, check out these related resources: