Articles

Despite the rapid growth in Latino homeownership in recent years, the rate continues to lag significantly behind the nation’s overall rate, as well as of that of non-Hispanic Whites. Although observers believe that the homeownership gap between Latinos and Whites is primarily attributable to Hispanics’ lower median income, NCLR’s analysis suggests otherwise. NCLR identifies five major barriers: lack of consumer education, low incomes vs. high housing costs, inflexible mortgage criteria, discrimination, and lack of outreach to the Latino market.

A survey released in November 2000 by the National Association of Hispanic Real Estate Professionals (NAHREP) listed “lack of education regarding the homebuying process” as the number one barrier to Hispanic homeownership. Barriers to educating Hispanics, such as cultural and language differences, impede the dissemination of mortgage and other homeownership knowledge. The unresponsiveness by the housing industry to language and cultural differences leads to a lack of understanding regarding the mortgage industry. Many Hispanic immigrants bring with them “knowledge” of their home countries’ housing industry, which is largely inapplicable to the U.S. housing market. Hispanics frequently lack knowledge of the homebuying process, due in part to the low levels of educational attainment in the Hispanic community, lack of familiarity with financial institutions, and few connections to other Latino homeowners who can guide them through the process.

In addition to the lack of consumer education, the dismal homeownership rate for Latinos is linked in part to the combination of low Latino incomes and soaring housing costs. For most American families, homeownership is the single greatest wealth-building vehicle, allowing households to leverage equity to send children to college or start a business. At the same time, incomes have not kept up either with inflation or with housing prices. Housing costs for Latinos represent a larger burden on household income than for other groups. In addition, Hispanics are more likely to live in housing that is of poor quality and/or overcrowded. Housing is especially burdensome for Hispanics because they continue to be one of the poorest groups of Americans.

Lack of a strong or solid credit history is another barrier for many Hispanic households. Many immigrant households are more familiar with cash-driven economies and therefore lack the 24-month credit histories required by mortgage underwriters who approve or deny loans. In addition, Hispanics have trouble layering second and third mortgages as the market has trouble underwriting these loans. Deviance from the “standard” industry mortgagor profile leads to complications in approvals for mortgages for potential Latino homebuyers. While the mortgage industry is making strides to improve the capacity of systems, significant barriers remain.

Discrimination appears to be a significant deterrent to homeownership for both Hispanic native-born and immigrant households. In research funded by the U.S. Department of Housing and Urban Development (HUD) using mated pairs of “testers,” the Urban Institute found that, ten years ago, more than 50% of Latinos encountered some form of discrimination in the homebuying process. A decade later in 1999, high levels of housing discrimination against Hispanics have not diminished. Latinos are still underserved by the fair housing enforcement system. For example, currently 9% of HUD’s fair housing caseload consists of charges from Hispanics. Given their proportion of the population, this figure should be at least 15%.

Finally, even when not deterred from seeking homeownership by a number of external factors, Hispanic homeseekers are at a significant competitive disadvantage in the housing market, given the issue of lack of consumer information. Many Latino families are unaware of new flexible mortgage products; others are not informed of first-time homebuyer programs and other incentives that can significantly reduce the financial barriers to homeownership. In fact, many Latino home purchasers who could qualify for A-rated mortgages are steered into accepting loans with higher interest rates and higher fees. As a result, even those prospective homebuyers who do qualify for homeownership often accept less favorable mortgage terms than those for which they should be able to qualify.

Despite the barriers, Latinos desire to be homeowners. Yet at every income level, including among high-income households, there is a gap between the homeownership rates of Whites and Hispanics. At a minimum, these data demonstrate that income differences alone cannot explain the gap. NCLR determined that if Hispanics could attain the same homeownership rates as White households with similar incomes, the overall Hispanic homeownership rate would rise to well above 60%. The most effective strategy for increasing Hispanic homeownership rates should focus on expanding access of prospective Latino homebuyers to well-designed housing counseling programs (individualized consumer education). Congress and the Administration can do much to increase Latino homeownership, including: providing greater federal support for housing counseling; promoting an increased supply of homes affordable to low- and moderate-income buyers; and expanding fair housing, fair lending, community reinvestment, and related activities. A national commitment to increasing Hispanic homeownership is long overdue.