Over the past year, the Hispanic-homeownership rate posted the largest increase in a decade, jumping 2.2 percentage points, to 46.7 percent, according to a report from the National Association of Hispanic Real Estate Professionals (NAHREP). Joseph Nery, who took over as NAHREP’s president this past week, spoke with Scotsman Guide News about the importance of this demographic group and the barriers standing in the way of expanding homeownership within its ranks.
Why have we seen a big jump in the Hispanic homeownership rate?
When you look at the spike in numbers from 2014 to 2015, 69 percent of the new households that were formed over that period are of Hispanic descent. The reason why you saw that large jump was two-fold. One, Hispanics overwhelmingly are committed to the concept of homeownership. They realize that is typically the number one way that they will accumulate wealth. Secondly, the economy has been recovering. You have seen stronger job reports and that, in turn, has affected the employment status of more and more Hispanics that now feel more secure with the economic outlook of the country. That leaves them in a more secure position to go ahead and purchase homes.
How important is the demographic to the future housing and mortgage markets?
We at NAHREP have an expression that the Hispanic community is the driver of the housing industry. That is substantiated by numbers that you see in our state of homeownership report. The most eye-popping statistic is that from 2010 through 2030, 52 percent of the homebuyers are going to be Hispanics. Again, half of every homebuyer over the next 15 years is going to be a Latino. That is something that just simply cannot be ignored.
The Hispanic homeownership rate is still far below the overall national average and the mortgage denial rates of Hispanics are significantly higher than whites. What are the barriers?
In terms of access to credit, one of the issues that we have is that there are some different fees that are applied to loans that are considered to be riskier. A loan with a participant that has a lower credit score is considered to be riskier, and so there are more fees added to them to protect the lender that is issuing those loans. Overwhelmingly, and disproportionately, it affects people of color, especially Latinos. That becomes a challenge because now it becomes more expensive for Latinos to take out mortgages. That is something we are really working on. One of the issues that is extremely difficult to overcome is that whole credit-scoring model system. Under the current credit-scoring model under FICO, someone may have a credit score of 610. The problem with that is that the current credit-scoring models were established in the ‘70s and ‘80s. They don’t really account for how people manage their money in 2016 … in particular, how Hispanics manage their money.
How could a credit-scoring model be structured to help boost Hispanic homeownership?
There are probably two aspects that you can take into account. Hispanics, as a whole, you will find multiple family members living within a household. Everybody contributes to that payment, whether it is a rental payment or a mortgage payment. If they are contributing to a rental payment, the current scoring models don’t take that into account, whereas an alternative scoring model would look at that. If you also look at utility payments and how utilities are paid as a whole, and rental payments as a whole, that is also a good indicator of whether this person will be a responsible homeowner and make their mortgage payment. Those things aren’t accurately captured under the credit-scoring models.
Another component, as well, is just looking at savings. Oftentimes the current models are looking at savings and checking accounts, which are not always as pervasive in the Hispanic community as in mainstream communities. You might find folks who might just keep their money in cash. The current scoring models don’t account for cash. They don’t give them points or credit for aggregating their cash in one secure area. An alternative scoring system would look more so at your W-2s, at your tax returns, at your profit-and-loss statements. Hispanics, as a whole, are extremely entrepreneurial, so you’ll find a lot of folks who are self-employed. That presents challenges as well in accessing mortgages.
Another issue I have heard is that there may not be enough Hispanic Realtors and mortgage originators who can speak Spanish and understand cultural nuances. Has there been any progress there?
NAHREP has an initiative called the Hispanic Wealth Project, and the goal is to triple the size of household wealth over the next 10 years. In that initiative, there are four pillars to achieving our objective, and one of the pillars is to increase the number of Hispanics that are in the financial-services and real estate industry. One of my objectives is to establish an apprenticeship program, where we would go ahead and create a relationship with community college students to make them aware that a career in real estate and financial services is really a wonderful career and an opportunity for them. That would allow us to partner with offices that are NAHREP members, and partner with local associations to provide education.
What is NAHREP’s forecast on where the Hispanic homeownership rate will be in 10 years?
We believe with education, with access to credit improving, with more Hispanics in the lending and real estate industries, that that is going to help us get past that milestone of 50 percent over the next 10 years. If our objectives are achieved, within 10 years, I would not be surprised if the homeownership rate within the Hispanic community was somewhere between the 52 to 56 percent range. Our objective is to get over that 50 percent milestone.