Is Homeownership Just a Dream for Latino Millennials?

By Agatha So, Policy Analyst, Economic Policy Project, NCLR

Family in front of home

While American families who bought a home before the Great Recession were likely most concerned with the interest rates of their home loan, today’s millennials might be more preoccupied with the interest rates and repayment plans on their student loans.

Nearly 70 percent of bachelor’s degree recipients leave school with debt. Student loan debt is one of the largest burdens carried by Americans today, second only to mortgage debt. As a result, it comes as no surprise that student loan debt may be holding back millennials, especially older millennials, from buying a home.

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How Will Secretary Carson Engage Latino Homebuyers?

By Agatha So, Policy Analyst, Economic Policy Project, NCLR

Many questions remain for Dr. Ben Carson, who last month was officially sworn in as our newest Secretary of the U.S. Department of Housing and Urban Development (HUD). Since his January 12 confirmation hearing, many are still wondering how Dr. Carson will fulfill HUD’s mission and carry out the critical task of providing affordable rental and homeownership opportunities—free from discrimination—for all Americans.

On March 28, Secretary Carson had an opportunity to discuss his housing policy priorities at the National Association of Hispanic Real Estate Professionals Conference. It was an important audience for Secretary Carson—the Association represents the largest group of Hispanic real estate professionals, whose primary mission is getting Latinos into homes. This is a critical constituency, because Latinos are expected to form more than 40 percent of new households in the next decade. By 2020, Latinos are expected to account for half of new homeowners. Yet today, only 46 percent of over 14 million Hispanic households own their home, well below the rate in 2006, before the housing crisis, when nearly half of over 12 million Hispanic households owned homes.

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The Work of the Fair Housing Act Is Not Yet Complete

HousingDiscrimination_blogpic_newHomeownership is a cornerstone of the American Dream and often a doorway to greater opportunity. The family that is able to buy or rent in a neighborhood with a thriving local economy is undoubtedly more likely to find the kinds of quality, well-paying jobs that will help them move up the economic ladder. Children who are able to attend good school systems have a greater chance of moving on to higher education and achieving their professional dreams. Choosing where to settle down is a decision with tremendous implications for a family’s future.

Unfortunately, not everybody is given a fair shot at living in the communities of their choice. The Fair Housing Act, signed into law more than 45 years ago to end discriminatory housing practices, has been an essential safeguard for Latino families who would otherwise have been denied equal access to housing. Yet housing discrimination persists at alarming rates—more than three million cases every year. NCLR research shows that even in communities with a longstanding Latino presence, such as San Antonio, housing discrimination is still an issue that Latinos face on a regular basis.

Having just gone through a housing crisis that wiped away generations of wealth from communities of color who were disproportionately targeted with predatory lending practices, it is clear the Fair Housing Act is needed now more than ever. However, a challenge in the Supreme Court could irrevocably alter this essential legislation for the worse. Today the Supreme Court heard oral arguments on a case that will determine whether the use of disparate impact within the Fair Housing Act can continue to protect against discriminatory housing policies.

Family in front of houseAs it stands, disparate impact prohibits housing policies that result in discrimination, regardless of intention. For example, when a community passes a local ordinance outlawing families larger than four people to sign a rental lease, the result is an unintentional limitation on rental options for large families—families who may be living with multiple generations under one roof or have relatives visiting from their home countries for extended periods of time. These types of policies, which enable racial exclusion to persist, are kept at bay by provisions of the Fair Housing Act.

If our nation is to live up to its highest principles of fairness, justice, and opportunity, then the Supreme Court cannot chip away at the critical protections offered under the Fair Housing Act. If we allow these discriminatory policies to persist, we will forever have a nation in which people who make the same incomes, have the same financial profiles, and have the same credit scores, will not achieve the same results—simply because housing service providers can employ separate but unequal systems that perpetuate discrimination. Discrimination, even if it is unintentional, must be eradicated in order to foster more diverse and inclusive communities that empower Americans to seek out opportunity and fulfill the American Dream.

Small Steps to Revive the American Dream of Homeownership

Family in front of housePresident Obama recently gave a speech in Arizona announcing a reduction in mortgage insurance premiums charged by the Federal Housing Administration (FHA). This much-needed policy change will save homeowners with FHA loans an average of $900 a year on their mortgage payments while making the dream of homeownership more affordable and easier to reach for many Americans, including Latinos.

Unfortunately, the key message and potential benefits to hard-working Americans were lost following the announcement. Conservative policymakers were quick to invoke a deeply entrenched false narrative that attributes the collapse of the housing market to unqualified borrowers. For example, House Financial Services Committee Chairman Jeb Hensarling (R–Texas) released a statement calling the reduction in FHA premiums disappointing and warned against “the destructive cycle of boom, busts, and bailouts that poor decisions in Washington produce.

Regrettably, comments like this from Hensarling and others distract from the large body of evidence confirming that the foreclosure crisis was a result of unscrupulous lenders steering minority borrowers into costly subprime loans. The Financial Crisis Inquiry Commission, studies by economists at the Federal Reserve, and a number of other independent investigations have all shown that the housing crisis stemmed from private-sector lenders chasing profits by producing large volumes of unsustainable loans without regard for borrowers. The Department of Justice reached historic settlements with large lenders charged with steering Black and Hispanic borrowers into predatory subprime products, even when these borrowers qualified for safer conventional mortgages. Additionally, a recent study by a private consulting firm refutes the idea that mortgage credit was easily attainable leading up to the housing market’s collapse. Using 10 years of mortgage originations, the study finds denial rates were actually higher before the crisis than they are in today’s tight credit market. Yet, just as banks and other financial institutions received taxpayer bailouts, they responded by restricting access to affordable mortgage credit to only the most pristine borrowers.

This restrictive environment is where we find ourselves today. Access to affordable mortgage credit continues to be a real barrier to homeownership, especially for qualified Latinos and other underserved markets. The reduction in mortgage insurance premiums from the FHA is expected to provide some relief to put many qualified Americans on the path to homeownership and better financial prospects. We hope that in the future, policymakers stop blaming victims of the foreclosure crisis and we encourage the Obama administration to continue doing more to put the dream of homeownership back within reach of Latino families.

The Federal Housing Administration: Unsung Hero of the Housing Market

By Jose A. Garcia, Policy Fellow, Wealth-Building Policy Project

The Federal Housing Agency (FHA) is one of the unsung heroes of the housing market.  Despite helping to save the housing market following the mortgage crisis in 2007, the FHA is continuously attacked, erroneously, for its commitment to provide mortgage liquidity in times of need and encourage lending to low income households.

American Enterprise Institute (AEI) recently released a report on the riskiness of the Federal Housing Administration’s (FHA) lending practices.  The report conflates and confounds data to reach misleading conclusions and recommends unnecessary changes.  FHA’s current financial challenges are overwhelming due to loans insured between 2007 and early 2010 as well as a single loan product:  seller-financed mortgages.  However, its losses are not due to creditworthy borrowers with lower credit scores and lower down payments, and AEI would do well to remember that correlation is not causation.  Furthermore, FHA no longer insures seller-financed loans.

If that is not enough for you, let’s look into this further.  For decades, lenders have been able to successfully provide reliable and sustainable mortgage products to low income communities across the country that are profitable for the markets and fair to vulnerable borrowers. A decade long study conducted by UNC Center for Community Capital of 46,000 low-income homeowners found that of those who received traditional 30-year, fixed-rate mortgages with a small down payment, 95% of homeowners were paying their mortgages. UNC’s study shows that correctly structured home loans to low-income households perform quite well, leading to sustainable homeownership and sound business opportunities for lenders.

For many low- and middle-income American households and communities of color, the FHA is a critical part of the mortgage lending repertoire to access homeownership.  By insuring loans made by private lenders—even during severe economic downturns—the FHA provides stability to the housing market and access to credit.  This was never truer than after the recent housing crisis, when credit became difficult to access and many lenders turned to the FHA.  Now the 78-year-old agency may need help to continue its good work, and if it does, American taxpayers should lend a hand.  Doing so benefits not only families looking to purchase their first home but the economy at large.

The FHA helped hold down the fort as the housing market reeled from the aftermath of bad loans and Wall Street greed.  Based on an analysis by Moody’s analytics, the agency’s actions in 2011 alone helped prevent housing prices from decreasing an additional 25% and from a 40% decrease in the sales of new and existing homes, saving three million jobs and half a trillion dollars in economic output.  By stepping in, the FHA rescued tens of thousands of middle-class families from losing their home equity and, in many instances, their homes.  The agency did this by backing a larger share of mortgage originations as private investors fled the housing market.  At the peak of the housing bubble,  FHA insured one-third of loans made in 2009, compared to 5% before the alarms rang in 2006.

Despite the important role that the FHA played in keeping the housing market from total economic collapse, Edward Pinto from AEI stated that, “This paper reports on a comprehensive study that shows the FHA is engaging in practices resulting in a high proportion of low- and moderate-income families losing their homes.”  Fiscal projections point to a shortfall between what the FHA needs to cover all its claims over the next 30 years and how much it has on hand.  FHA’s possible shortfall was not caused by lending to low- and middle-income households but rather due to maintaining liquidity in the housing market.  The shortfall does not mean a definitive need for taxpayer monies to cover it—it will be months before we know that for sure.

The FHA has already addressed unsustainable programs that contributed to its trouble.  Its seller-financed down payment assistance program, which called for the originator to cover the down payment, often resulted in originators inflating the purchase price of a home in order to do so.  This in turn led to financially unstable loans, especially during the recession, that resulted from the subprime debacle.  Congress banned the program from FHA insurance in 2008, after FHA had tried to eliminate the program for years.

While the seller-financed down payment program did not work, most FHA products do.  Low- and middle-income borrowers and communities of color have benefited from sustainable and profitable mortgage loans insured by the FHA.  The FHA provides a necessary service that the conventional market does not provide.  However, by pointing fingers at the FHA, critics are undermining the ability of an agency that has been critical in keeping the mortgage market accessible and affordable, providing sustainable pathways to homeownership for millions of Americans.