Industry Insight: Expanding Homeownership to the Asian-American Market
May 30, 2017
We're focusing on the Asian-American homebuying market in this Industry Insight, the third of a four-part series on expanding homeownership to different demographic groups.
The Asian Real Estate Association of America (AREAA) was instrumental in having the Asian-American and Pacific Islander (AAPI) community added as a distinct category to the Census Bureau's quarterly reports on homeownership by race.
According to the Census Bureau, the AAPI community is the fastest growing population segment in the U.S., estimated to include 19.4 million people today – and predicted to top 40 million by 2050. How can community lenders help AAPI households increase homeownership?
AREAA reports that Asian-Americans produced 2 million loans for $600 billion in mortgage origination over the past five years. That's an average loan balance of $300,000 and is the highest of any market segment.
That's the good news, but significant challenges remain. AREAA has found that low-income AAPI consumers face higher rates of mortgage application denial than any other ethnic or racial group. The fact that roughly 67 percent of adult AAPI community is foreign born creates both cultural and language barriers, Silvano notes.
These barriers may help to explain the apparent discrimination experienced by this community: AREAA reports that Asian homebuyers who contact real estate agents about recently advertised homes learn about 15 percent fewer available homes on the market, and are shown nearly 19 percent fewer units than Non-Hispanic white homebuyers.
In addition to discrimination, another obstacle to expanding homeownership in the AAPI community is the "model minority" myth. "While it is certainly true that some portions of the AAPI community have enjoyed quite a bit of success," Silvano explains, "it is important to note that this is simply not the case for a vast number of AAPI." More than a quarter of AAPI households are considered low income, and the poverty level of 13 percent is the same as the general U.S. population.
Other key obstacles include:
Invisible credit – Silvano explains that standard credit models often undervalue the credit-worthiness of AAPI households. "Many come from countries that do not value debt," she says. Alternative credit models that account for factors such as rent and utility payment histories "have been shown to be as accurate and reliable a system as traditional models," she notes. These alternatives may open homeownerships to as many as 280,000 AAPI consumers.
- Language barriers – AREAA has found that 77 percent of AAPI consumers speak a language other than, or in addition to, English, and 80 percent prefer their first language to be used in important financial materials. "Language barriers prevent many AAPI consumers from even attempting to purchase a home," Silvano states.
Both the financial and cultural diversity within the AAPI population suggest that community lenders need to become acquainted with the specific experiences of their local AAPI households. "Because of the vast number of countries, languages, and cultures in what is referred to as 'Asia,'" Silvano explains, "the experiences of 'Asian-Americans' can only be expected to vary as much in the U.S. as they do in their nations of origin."
Community lenders should let AAPI households know about mortgage products that can meet their needs, such as high LTV loans like Freddie Mac's Home Possible®, and connect them with down payment assistance programs.
Whether high or low income, AAPI communities are likely to benefit from the help of community lenders in the following additional ways:
First-language materials – The broad spectrum of languages among the general AAPI population necessitates community lenders learning what languages are most common in their locales, and investing in developing marketing materials in these languages. For example, Freddie Mac's CreditSmart® is a multilingual financial education curriculum and consumer outreach program that provides training, tutorials and materials geared for reaching potential homeowners who may not be English speakers.
Language assistance programs – A personal investment in local AAPI communities may initially take the form of English-language programs. Having an ongoing presence in the community, developing personal relationships and learning the needs of this community will go a long way to establishing a community lender as a trusted advisor when it comes to home purchasing opportunities.
- Alternative credit models – Utilizing whatever latitude might be available, community lenders who uncover and account for the "invisible credit" of AAPI households may open the path to homeownership through responsible yet flexible mortgage lending practices. For example, Loan Product Advisor®, the automated underwriting tool in Freddie Mac Loan Advisor Suite®, enables lenders to underwrite mortgages for borrowers without a credit score.
For insight into how to expand homeownership to other growing demographic groups, check out these related resources: