A Warm Welcome: Despite barriers, Hispanic homeownership may be the fix for national housing crisis

Published on Tuesday, 02 September 2008 00:00

In Ecuador, Carlos Abad, 66, owned two homes, one he built himself in the city of Quito and another five-bedroom villa outside the capital where he and his family went when they wanted to relax. Since his move from South America, it has taken Abad seven years to purchase a house in the United States.

“I am retired in my country, and here I work,” said Abad, who lives in Morrisville, N.C., in a translated interview. “A year and a half ago we wanted to buy a house. The price, the location, the distribution of rooms all were obstacles. So was the process of looking for one that fit economically and fit the family's interest.”

Before last November, Abad was one of the majority of Hispanics living in the United States who did not own a home. When he first arrived in the United States in 2000, only 45.7 percent of Hispanics were reported to own a home compared to 71.3 percent of whites. By 2010, there are projected to be about 28.7 million homeowning Hispanics in the U.S. – 60 percent of the total Hispanic population.

As mortgage lending is currently at historic lows and the stability of the housing market is in question, it is harder for Hispanic, first-time buyers to purchase homes and even harder for existing owners to keep their homes from foreclosure. Despite low house prices, the Hispanic homeownership rate is in danger of falling due to barriers that plague many in the Hispanic community such as lack of credit history or bank accounts, limited access to financial resources, the language barrier and little knowledge about the homebuying process. Hispanics are also more likely to be victims of predatory lending practices.

But still, some experts say that the Hispanic homebuying community will ultimately help bring the country out of the housing slump. By 2012, 40 percent of first-time homebuyers in the U.S. are projected to be Hispanic, according to the National Association of Hispanic Real Estate Professionals (NAHREP), a nonprofit network of real estate agents, loan officers, mortgage brokers and other advocates of Hispanic homeownership.

“The irony of all of that now let’s say is that the number of families until now that had been fortunate enough to not fall into a trap of subprime loans now it’s possible for a lot of those potential buyers to buy those homes,” said Alejandro Becerra, author of a 2007 NAHREP study about Hispanic homeownership.

“However, a lot of those lenders are too stringent, and it’s going to take a lot of time to balance this out.”

The American Dream

The Tomas Rivera Policy Institute, a non-profit, Latino research organization, estimates that nearly 1.5 million Latino households will buy homes by 2010, but it estimates that another 700,000 Latino families would be able to buy homes if the housing industry offered more programs targeted toward Hispanics such as bilingual outreach, financial counseling and access to affordable loan products.

If the potential 2.2 million Hispanic households enter the home buying market then they would contribute an additional $500 billion in home sales and $450 billion in mortgage sales for the housing industry, according to the Tomas Rivera Policy Institute. The large volume of home sales and loans could result in a potential $8 billion in gross income.

Hispanic homeownership has been growing because of the large income gains made by Hispanics as well as low interest rates and the growth of the Hispanic population. In 2006, Hispanic purchasing power was estimated at $798 billion, and it is expected to grow more than 8 percent annually until 2010 when it could possibly surpass $1 trillion.  At the same time, the Hispanic population in the Unites States continues to grow. Because of high immigration rates, higher than average birth rates and a population that is generally ten years younger than the rest of the population it is estimated that there will be more than 100 million Latinos in the country by 2030. The average age of a Hispanic homebuyer is 24 compared to 32 among whites.

“I think it’s the dream of every family to own their own house. And for us, it’s a big step for a great future,” said Feliciano Dimas, 30, in a translated interview.
He and his wife both immigrated from Mexico and lived in California for a few years before relocating to Chapel Hill, N.C. After living together in North Carolina for about three years, the couple is considering buying a home. The couple recently having a son was one of the reasons why they wanted to buy a house, they said.

Several housing experts agree that many Hispanics want to buy homes not only to grow their families but also to become financially secure. Buying a home allows an owner to build equity in a house. Each month when the mortgage is paid the homeowner gets closer to completely owning a home. When homes rise in appreciation, it is one of the best ways for a family to make money.

“A lot of the families think that this is the American dream,” said Susan Perez-Travers, a bilingual outreach coordinator for the Durham Affordable Housing Coalition in Durham, N.C. “You can come here to build the American life and buying a home that is how you put in your roots and you build that life.”
Perez-Travers teaches homebuying workshops for Spanish speakers. She has heard how some Latino tenants have been taken of advantage of by their landlords, who were not making the repairs to their apartments like they promised. After tenants realize that their rent money is going down the drain each month, they start looking for other options, she said.

“In general, I would say most Hispanics tend to live in urban communities where the cost of living is kind of higher so that tends to be one of the main reasons why they want to buy a home but it is also a deterrent,” said Alejandra Louden, a member of the Congressional Hispanic Caucus Institute (CHCI).

Word of Mouth

The CHCI’s National Housing Initiative provides financial tips for Hispanic consumers and an educational fellowship for housing professionals such as Louden. It also issues public policy reports on how to increase Hispanic homeownership. Homeownership equity accounts for 63 percent of Hispanic household wealth – the highest of any demographic. Hispanics can take out equity loans on homes to pay off higher interest loans such as credit cards.

“The other major thing that has happened in this country especially for immigrants is they begin to realize that they can use the equity to start businesses,” Becerra said. “That accounts for a lot of the small businesses and restaurants that you have seen across the country owned by Latinos.”  

In 2004, CHCI conducted focus groups in 11 cities across the country to learn more about the problems preventing Hispanic homeownership and what could be done to resolve them. Louden participated in a focus group in Durham. One of the problems that she noticed was that the participants learned about housing mostly from their friends, who were not always the most legitimate sources of information.

“A lot of the information that we obtain is from word of mouth… Even those that speak English tend to look for help in their own communities,” Louden said. “In the longer term what we are hearing from a lot of professionals is that there is a lot of distrust in the public. They don’t know where to go or who will actually put them in a home.”

The problem of trusting a resource is a major one especially when many of the Hispanics purchasing a home for the first time are still learning how the system works and trying to avoid being scammed. The study respondents, who planned to buy a home within the next five years, said some problems they had were finding a trustworthy advisor (53 percent) and a lack of familiarity with the mortgage process (64 percent).

There are two main kinds of loans that a borrower can get: a fixed rate and an adjustable rate mortgage. With a fixed rate the interest rate does not change for the life of the mortgage. The advantages to this are that payments are predictable and therefore easier to pay. However, the interest rates are higher than those of other loans. Fixed rates are a good option for people who plan to stay in their houses for a long time, and they are also good when interest rates are low. Adjustable interest rates change each year. These tend to be the ones that give Hispanic borrowers trouble because the interest rate can start off relatively low and then grow each year without warning.

“We have seen an increase in predatory lending not only in the Latino community but in the minority community period,” Perez-Travers said. “Latinos tend to be targeted because of the language barrier although we have found out that a lot of those people being predators are Spanish speakers.”

Most predatory lenders stick borrowers with loans with very high interest rates making it hard for them to keep up with payments. In 2005 and 2006, 40 percent of the subprime mortgages in the U.S. were made to Hispanics, according to the NAHREP. Some experts are saying that many of the Hispanics who were being stuck with subprime loans could have qualified for better loans with lower interest rates.

Taken Advantage Of

“Something that I have noticed as a Latina myself is that a large percentage of the new immigrants in this state are unfortunately not educated,” Perez-Travers said. “They have never gone through the process of buying a home for the first time and predators are taking advantage of that.”

Perez-Traver often finds herself schooling first-time homebuyers about the hidden costs of owning a house that buyers may forget about such as home insurance and water bills because these costs may have been automatically included in their rent.

“One of the things that I always tell people if the bank qualifies you for $150,000 from the bank, don’t buy a $150,000 home,” she said.

Another large deterrent of Hispanic homeownership is that many Hispanics do not have established credit history or bank accounts. In some cases, they are being paid under the table with cash or they are self-employed so it is hard for lenders to see their sources of income and evaluate if those particular Hispanic borrowers could pay them back, Louden said. Fewer than 50 percent of Hispanics have bank accounts. Back in their native countries, many immigrants do not need a credit report to purchase a home, Perez-Traver said.

"In Ecuador it's different,” Abad said about the home buying process. “In my case when I bought my house in Ecuador I had Social Security and Social Security members had special prices for houses. So it was easier to buy with those prices. It was easier."

Despite some setbacks to Hispanic homeownership, there are several ways that lenders and borrowers can overcome them. Many Hispanics would fall in the category of non-traditional borrowers meaning that they may not have a Social Security number for some reason or they may not have a traditional credit score. Without either of these two criteria, it is hard to determine these borrowers’ credit worthiness using traditional methods so some lenders are underwriting loans in non-conventional ways to cater specifically to the Hispanic and immigrant populations.

For example, Wells Fargo accepts down payments from multiple family members so that they can pool their incomes together. Louden said it should also be possible to use someone’s bills and bank statements as alternative credit verification to show that there is an influx of income and a habit of paying costs consistently.

“Many people may not necessarily have a credit history, but they may be paying rent or cell phone bills so what we are saying is to use these means to show a client’s credit history,” Louden said.

While everyone does not have a Social Security number, everyone must have an Individual Taxpayer Identification Number (ITIN) that the IRS uses for tax purposes. More than 70 lenders only require this number and possibly Mexican consular identification if that immigrant is from Mexico.

The Hispanic National Mortgage Association based in San Diego, Calif., is a for-profit company with a mission to increase Hispanic homeownership in the U.S. They have about $225 million worth of loans specifically for ITIN users, said Ron Jauregui, senior vice president for Community Alliances at HNMA.

“Basically, presume that most of these folks are currently undocumented,” he said. “The industry would presume that these must be high-risk folks but nothing could be more contrary. Their default rate is less than a half percent. It blows people’s minds.”

Low Default Rate

According to the Federal Housing Authority, the default rate for Hispanics was 1.15 percent in 2002, compared to 2.78 percent for whites, making it seem that Hispanics are statistically better borrowers. Jauregui attributes the trend to loyalty on the part of Hispanic borrowers. Once they find someone they can trust, they will stick with that financial institution, he said.

“They aren’t likely to jaywalk let alone miss a payment,” Jauregui said. “Basically, they don’t want to piss anyone off, especially a financial institution which they are quite frankly afraid of. They are pretty brave….Maybe they have never even walked into a bank and then they come here to deal with a financial intermediary to make probably the largest purchase of their lifetimes.”

While non-traditional underwriting of loans is one way to break down the barriers of Latino homeownership so is financial education. Financial education provided in Spanish by people that families trust may be one of the best ways to raise the homeownership rate because it gives Hispanics the tools to identify what is the best loan and home for them.

Headquartered in Durham, the Latino Community Credit Union is the first fully bilingual financial institution in the state. It is a community-based and member-owned nonprofit financial institution that provides protection of financial assets, access to loans and financial education to about 51,000 members.

“We have financial education certificates so if you do the six classes you get a certificate and we have a graduation ceremony with caps and gowns which for some of the immigrants is very exciting because some of them never finished high school,” said Angel Romero, director of marketing and communications at the credit union. “Having a graduation is a very emotional thing.”

Unlike most other credit unions in the country, the Latino Community Credit Union has a young membership primarily in their 40s, Romero said. In 2006, 3,000 students participated in the credit union’s workshop series. Topics included: budgeting, building credit history, buying a car and purchasing a home among a few.

“More than anything, now, we would like to have the know-how behind buying a house,” Dimas said at a homeownership workshop. “What we have seen with relatives, they have bought houses, and we have seen their failures with rough finances and that kind of thing. For the moment, we are worried, and maybe we will decide to think more about it.”

Telenovelas Can Help

The Latino Community Credit Union is not the only group to utilize the idea of edutainment when it comes to financial literacy. In 2006, the Community Reinvestment Association of North Carolina (CRANC) created “Nuestro Barrio” or “Our Neighborhood,” a telenovela or Spanish-language television soap opera that focuses on teaching the Hispanic community about everyday issues. A large part of the plot centers around homeownership. CRA-NC advocates to end predatory lending practices which would explain the show’s focus.

Telenovelas are normally watched together by the entire family so the show is an ideal format to communicate family messages, said Dilsey Davis, director of the CRANC’s Media Advocacy Division and the creator of the show. Filmed in Durham, “Nuestro Barrio” is one of the only telenovelas that is produced in the United States, which helps make the storylines more relatable to Hispanics living in the country, Davis said.

“‘Nuestro Barrio’ is about people who live here in the United States while most of the novelas are imported from other countries,” Davis said. “People said they like this novela because they said, ‘It’s about me. It’s about me living here.’”

The housing market is still going through some qualms. For the first quarter of 2008, the rate of homeownership for blacks and Asians both fell, continuing a trend of decline since 2004, and the rate of homeownership for non-Hispanic whites staid practically the same. However, the rate of Hispanic homeownership went up from 48.5 percent at the end of the fourth quarter of last year to 48.9 percent in the first quarter of 2008.

Despite these positive numbers for Hispanics, there are still tough times ahead. Bank of America’s pending acquisition of Countrywide has made it the nation’s largest mortgage lender. After the Charlotte-based bank’s profits plunged 77 percent in the last quarter and the bank released a statement in April saying that it would stop making adjustable rates available and reduce their offerings of non-traditional loans, potential Hispanic homebuyers may have cause to worry. But moving away from unjustifiable, asset-based loan products may not be a bad thing, Becerra said.

“Perhaps even in these dire circumstances minorities are still going to buy and hopefully they are not falling prey to the same subprime loans that they did before,” Becerra said.

The Abad family is split up. Carlos and his wife Lourdes Abad, 61, live with two of their daughters in their new home in Morrisville, but the rest of their five children still live in Ecuador. Lourdes Abad, 61, enjoys living in the U.S. except for the fact that she is separated from some of her family.

“We bought the house so that the kids have someplace to come home to,” she said in a translated interview. “Even if it is just for visiting, they have something to come home to."

Nicole Norfleet is a senior at the School of Journalism and Mass Communication at UNC-Chapel Hill. She is currently managing editor-online for The Daily Tar Heel, the student newspaper.

Federal Housing Authority

Tomas Rivera Policy Institute

NAHREP report “The Potential of Hispanic Homeownership: Challenges and Opportunities”

National Housing Initiative, CHCI report, “An Assessment of Hispanic Homeownership”

U.S. Census Bureau: Census 2000 Housing Tables Homeownership by Race and Hispanic Origin

“Nuestro Barrio”