Hispanic Homeownership Seminar

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Hispanic Homeownership Seminar

• U.S. Department of Housing and Urban Development
• Thursday, June 1, 2006

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Improving Hispanic Homeownership Opportunities A
Review of the Literature Alvaro Cortes Chris
Herbert Erin Wilson Elizabeth Clay
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Goals of the Study

• Describe key characteristics of the Hispanic
  population and trends in Hispanic homeownership
  rates and gaps relative to whites
• Review what is known about the determinants of
  Hispanic homeownership gaps and the principal
  barriers to increasing Hispanic homeownership
• Identify existing efforts to promote Hispanic
  homeownership and what is known about the
  effectiveness of these efforts

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Key Demographic Characteristics

• Hispanics are an increasingly important source of
  demand for housing
• Nearly 12 million Hispanic households in 2004 or
  about 10 percent of all U.S. households
• The number of Hispanic households increased by
  more than 50 percent between 1990 and 2000
  compared to 12 percent growth for all households
• Masnick and Di (2003) estimate that Hispanic
  households will increase by 7.5 million between
  2000 and 2010 a third of all growth and nearly
  as large as growth in white households
• But a variety of characteristics contribute to
  lower homeownership rates for Hispanics

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Hispanics Are Disproportionately Low Income
Source 2000 Decennial Census
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Have Limited Wealth
Source SIPP 1999-2000
7
Low Levels of Education
Source 2000 Decennial Census
8
and Are Much Younger
Source 2000 Decennial Census
9
But Hispanics Are More Likely to Be Married with
Children
Source 2000 Decennial Census
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Immigrants Account for Large Share of Hispanic
Households
Source 2000 Decennial Census
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Although Most Hispanics Have Lived in the U.S.
for Many Years
Source 2000 Decennial Census
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Great Diversity Among Hispanic Immigrants
Source 2000 Decennial Census
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Hispanics Have Been Geographically Concentrated
Often in Higher Cost Markets But Now Are
Growing Rapidly in Other Areas

• Slightly more than half of Hispanics live in 30
  largest metro areas compared to a third of all
  households
• Hispanics are more than 25 of the population in
  California, Arizona, New Mexico, and Texas and
  between 12.5 and 25 of the population in New
  York, New Jersey, Florida, Nevada, and Colorado
• Growth rates have been highest in states like
  North Carolina, Georgia, and Tennessee
• Mexicans predominate in West and Midwest, are a
  majority in the South, but only a small share in
  the Northeast

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Hispanic Homeownership Rates Have Risen Sharply
Since 1993
Source Current Population Survey
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But Hispanic-White Homeownership Gaps Remains
High as White Rates Also Increased
Source Current Population Survey
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Homeownership Gaps Differ by Country of Origin
Source 2000 Decennial Census
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And by Years in the U.S.
Source 2000 Decennial Census
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Which is Reflected in Differences in Gaps by
Region
Source 2000 Decennial Census
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Determinants of Hispanic-White Homeownership Gaps

• Much less studied than Black-White Gaps
• Studies that do not include immigration status
  generally explain about three-quarters of the
  observed gap
• Studies including immigration status explain most
  of Hispanic-white homeownership gaps

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Determinants of Hispanic Gaps (contd)

• Wachter and Megbolugbe (1992) use the AHS and
  find that demographic and housing market
  variables explain three-quarters of total gap (32
  of 41 pp)
• Lower Hispanic incomes are most important factor
  accounting for gap
• Flippen (2001) uses data from Health and
  Retirement Survey to include wide range of
  variables about income, risk aversion, and health
• Explain 21 pp of total gap of 27 pp
• Hispanics income and employment are most
  important factors, followed by Hispanics location
  in high cost markets
• But study only includes those age 51-61

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Determinants of Hispanic Gaps (contd)

• Gabriel and Rosenthal (2005) use SCF to examine
  importance of credit constraints
• Only explain half of 30 pp total gap
• Credit constraints only account for between 2 and
  5 pp of gap
• Coulson (1999) uses CPS and includes controls for
  immigration status and finds most of gap is
  explained only 2 percentage points of total 31
  percentage point gap unexplained
• Most important factors are immigration status,
  age, and location in high cost markets
• Unexplained gaps are largest for Puerto Ricans (9
  pp) and Cubans (7 pp), while no unexplained gap
  among Mexicans

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Primary Barriers to Hispanic Homeownership

• Lack of information about homebuying and mortgage
  qualification processes
• Particularly an issue for immigrants with limited
  English proficiency
• Difficulty in qualifying for mortgage financing
  due to
• Poor credit or no credit history
• Undocumented immigrant status
• Difficulty in documenting employment, income and
  savings
• Housing affordability
• Result of Hispanics concentration in high cost
  markets and the high share of households with low
  income and wealth

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Primary Barriers (contd)

• Some evidence of discrimination in housing and
  mortgage markets
• Paired-testing studies of housing search
  commissioned by HUD in 1999 found decline in
  discriminatory treatment of Hispanics since 1999
• But some evidence they are steered to Hispanic
  neighborhoods and are offered less help with
  obtaining a mortgage
• HUD study of mortgage pre-application process
  also found evidence that Hispanics were given
  lower estimate of how much house they could
  afford, less information on range of mortgage
  products available, and were less likely to be
  given positive coaching
• But only two markets studied and discriminatory
  treatment more evident in Chicago than Los Angeles

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Efforts to Promote Hispanic Homeownership What
is Being Done and What Works?

• At the Federal level there are not
  Hispanic-specific programs per se, but Hispanics
  are helped by
• Efforts designed to assist low-income and
  low-wealth households
• Efforts designed to assist immigrants
• Hard to catalogue magnitude of existing
  homeownership programs since they involve a range
  of efforts by federal, state, and local
  governments, national and local non-profit
  organizations, and private sector firms
• Very little is known about the effectiveness of
  homeownership policies generally let alone
  about efforts specifically to help Hispanics

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What is Being Done

• Information barriers ?
• Homeownership and financial literacy counseling
  (HUD, many others)
• Bilingual and culturally-sensitive service
  delivery approaches (CBOs, lenders, real estate
  agents)
• Mortgage market barriers ?
• Relaxed mortgage underwriting guidelines (many
  lenders)
• Financial barriers ?
• Downpayment and closing cost assistance (HOME,
  CDBG, NeighborWorks, FHLB, State HFAs)
• Income subsidies (Housing Vouchers, RHS Sec. 502,
  MCC)

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Efforts to Improve Homeownership Opportunities
for Hispanics Case Studies of Three Market Areas
Alvaro Cortes Erin Wilson Chris Herbert Pedram
Mahdavi
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Overview

1. Objectives of the Research
2. Approach to Site Selection
3. Cross-cutting findings
4. Marketspecific findings from Orlando (FL), San
   Antonio (TX), and Washington DC

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Primary Objectives

1. Identify the major barriers to Hispanic
   homeownership in three local markets.
2. Document the range of services offered by local
   providers to improve Hispanics access to
   homeownership opportunities.
3. Understand the scale of, and demand for,
   homeownership services, as well as approaches to
   marketing and coordinating services

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Site Selection

• Used 2000 census data to estimated the number of
  Hispanic households who would be homeowners if
  Hispanics owned homes at the same rate as
  non-Hispanic white households.
• Among the 25 markets, we looked for diversity in
  country of origin, share non-citizen, share of
  population, housing affordability, and size of
  homeownership gap.

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Site Selection
31
Site Selection

• Identified key stakeholders in each market for
  onsite interviews, including
• Housing counselors, affordable housing
  developers, mortgage lenders and loan officers,
  and real estate agents.
• Conducted follow-up telephone interviews as
  needed.

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Cross-cutting Findings

1. Common barriers (a) lack of information about
   the homebuying and mortgage qualification
   process (b) lack of affordable housing (c) lack
   of credit or poor credit histories.
2. Homeownership is made easier with more flexible
   mortgage products and downpayment assistance
   programs, but the efficacy of these packages is
   limited by the housing market and the targeting
   of certain households.
3. The majority of Hispanics need most (if not all)
   of the available services, but clients must
   cobbled them together from multiple providers.

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Cross-cutting Findings

1. Service providers operate within their preferred
   network of providers service coordination is
   fragmented across metropolitan areas.
2. There is a strong demand for homeownership
   services among Hispanics, but the capacity to
   serve these clients is increasingly strained.

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Market-Specific Findings Orlando

• Puerto Ricans have access to mortgage products
  that are otherwise unavailable to undocumented
  Hispanics.
• Migration patterns are important Financially
  stable Hispanics from the North (e.g., Boston and
  Chicago) and from Miami are moving to Orlando.
• Neighborhood preferences limit Hispanics housing
  options.
• Demand for services is growing tremendously
  Hispanic growth accounts for 47 percent of
  metropolitan areas overall growth.

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Market-Specific Findings San Antonio

• Hispanics comprise a large share of population,
  which prompts more service providers to offer
  targeted services to Hispanics.
• Information barriers differ from one generation
  to the next first generation households distrust
  or avoid financial systems (i.e., no credit)
  second generation households are overloaded in
  debt (i.e., bad credit).
• Undocumented households are the hardest to
  serve, and few programs/financial packages exist
  to serve this clientele.

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Market-Specific Findings Washington DC

• Hispanic homeownership gaps do not always narrow
  as household income increases rates increase as
  income increases, but gap fluctuate between 19
  and 28 percentage points.
• Impact of downpayment assistance programs is
  offset by escalating housing prices.
• Service coordination is particularly fragmented
  across metropolitan area, which is associated
  with the multiple governmental layers across
  Maryland, Virginia, and Washington DC.

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Conclusion

• Public and private sector interventions should be
  tailored to account for the metropolitan-level
  variations.
• Unclear whether the scale of these efforts will
  continue to meet the demand for these services.
• The lack of any real attention to households in
  the 80 to 120 percent of AMI group overlooks a
  large segment of Hispanics that might benefit
  from assistance to become homeowners.
• Service providers in each of these communities
  clearly are working very hard to open
  homeownership opportunities to Hispanics.

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Review of Selected Underwriting Guidelines to
Identify Potential Barriers to Hispanic
Homeownership Kimberly Burnett Alvaro
Cortes Chris Herbert
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Identified Underwriting Barriers to Hispanic
Homeownership

• Reviews of underwriting barriers by Listokin and
  Wyly (2000) and Schoenhotlz and Stanton (2001)
• Establishing credit history
• Documenting income and employment history
• Verifying assets
• Meeting citizenship or residency status
  requirements
• Affordability

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Methodology

• Reviewed mortgage underwriting guidelines used by
• Fannie Mae and Freddie Mac
• FHA
• GMAC for subprime products
• Conducted interviews
• Review completed December 2004
• Goal To understand the extent to which
  available products overcome underwriting barriers
  and identify where there is still progress to be
  made

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Establishing Credit History

• Barrier Many immigrants lack credit reports with
  one of the major credit repositories
• The GSEs and FHAs standard products allow use of
  non-traditional credit reports/credit history
• GMAC requires credit scores for subprime products
• Traditional credit history is required for some
  products that are flexible in other respects
• For borrowers with established but poor credit
  history
• FHAs standard product allows the most
  flexibility among prime products
• The GSEs have targeted products that offer
  flexibility
• GMAC approves borrowers with low credit scores

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Documenting Income and Employment History

• Barrier Immigrants are more likely to be paid in
  cash, may change jobs more frequently, have gaps
  in employment, and have extended family members
  who contribute to household income
• Employment history
• Standard products require two years of employment
  history. Income stability, not the length of
  tenure at a particular job is the focus.
• Written documentation is required
• Income documentation
• GSEs and GMAC have products that allow low/no
  income documentation, but also require high
  credit scores
• Income from boarders is counted in FHAs standard
  product and some of the GSEs targeted products.

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Verifying Assets

• Barrier Borrowers who do not use banks for
  their savings can not provide bank statements to
  document that they accumulated funds used for
  downpayments over time.
• Acceptable sources of funds to close the mortgage
  in FHAs standard product and targeted products
  offered by Fannie Mae and Freddie Mac are
• Cash accumulated through savings clubs
• Cash saved at home
• Must be sufficiently documented.
• Some products also allow related people living
  together to pool funds for closing costs and
  downpayments.

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Meeting Citizenship or Residency Status
Requirements

• Barrier Mortgage underwriting may preclude
  loans to borrowers who are not U.S. citizens.
• U.S. citizenship is not required for mortgage
  approval for standard products by Fannie Mae,
  Freddie Mac, or FHA
• GMAC imposes some additional requirements for
  non-permanent resident aliens.
• But legal residence in the U.S. is required for
  mortgage approval.
• Nationwide, a handful of pilot programs have
  tested extending mortgage credit to borrowers who
  do not have valid Social Security numbers, but
  their viability is uncertain.

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Affordability

• Barrier Hispanics are disproportionately in
  low-income and low-wealth households.
• Products targeted to low- and moderate-income
  households help to address this barrier
• Low-downpayment products
• Some require relatively high credit scores
• Come at the expense of mortgage insurance
  payments
• Subprime low-downpayment products typically carry
  higher interest rates
• Higher total debt-to-income ratio allowed
• Higher housing expense-to-income ratio allowed
• Low or no financial reserves required for some
  products

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Remaining Barriers

• Legal residency
• Lack of acceptability of cash income
• Availability of Spanish-language homebuyer
  education and counseling
• Special products that address key barriers may
  not be widely available
• Flexibilities from subprime lenders come at the
  cost of higher interest rates

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Language, Agglomeration, and Hispanic
Homeownership Don Haurin and Stuart Rosenthal
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Motivation

• As of the fourth quarter of 2005
• 76 percent of white non-Hispanic families owned
  homes
• 50 percent of Hispanic families owned homes
• Why?
• Differences in socio-economics between white
  non-Hispanic and Hispanic families
• We control for these factors, but this is not the
  focus of the present study
• Low homeownership rates in Hispanic communities
  create self-reinforcing effects that further
  restrict homeownership
• This is the primary focus of this study

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Motivation

• Proximity to other homeowners facilitates access
  to information about how to become a homeowner
• Neighbors may learn from each other
• Local lenders are more likely to provide services
  demanded by homeowners when there are sufficient
  numbers of homeowners nearby
• Proximity to other homeowners may affect
  preferences, encouraging other families to become
  homeowners

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Motivation

• Low homeownership rates in Hispanic communities
  create self-reinforcing effects that further
  restrict homeownership
• These effects are especially likely if nearby
  homeowners belong to a given familys social
  network
• These effects are also likely to be especially
  sensitive to whether nearby homeowners speak
  English

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Empirical Strategy

• We investigate these issues using household-level
  data from the 2000 Decennial Census
• We observe the MSA and PUMA in which a family
  resides in 2000
• We also observe the MSA and PUMA in which the
  family previously resided in 1995
• The data also provide information on the
  households attributes and homeownership status
  in 2000

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Empirical Strategy

• PRIMARY EMPIRICAL GOALS
• Evaluate the degree to which the presence of
  homeowners in the familys 1995 place of
  residence affect the familys propensity to own a
  home in the year 2000
• We pay special attention to the effect of nearby
  Hispanic homeowners of different English speaking
  ability on the propensity of Hispanic families to
  own a home

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Empirical Strategy

• We control for the presence of four types of
  homeowners in the 1995 place of residence
• Homeowners of the familys own ethnicity/race who
  are
• Weak English-speaking
• Not weak English-speaking
• Homeowners not of the familys own ethnicity/race
  who are
• Weak English-speaking
• Not weak English-speaking
• We create these measures for Hispanic families
  and also families of other race/ethnicity

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Empirical Strategy

• We also control for many year-2000
  family-specific attributes
• Total family annual income, Investment income,
  Welfare income, and their squares
• Age of the Head and its square
• Ethnicity and race of the Head
• Whether the Head is married
• Whether children under 18 are present
• Education of the Head
• Number of years the head has been in the U.S.
• Heads English-speaking ability
• MSA of residence in 2000 through MSA fixed effects

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Empirical Strategy

• 1995 Presence of Homeowners
• Measured at the PUMA level
• Full 5 sample of the IPUMS is used
• Sampling weights are used to ensure
  representative measures
• Estimating Sample
• Restricted to just those families that moved out
  of state between 1995 and 2000.
• This helps to ensure that the estimated influence
  of proximity to existing homeowners is indicative
  of causal effects

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Key Findings

• Standard control variables perform as expected
• For example, earned and investment income
  elevates propensity for homeownership
• Years in the U.S. increases the propensity to own
  a home
• English-speaking ability increases the propensity
  to own a home
• These patterns largely hold for all households,
  Hispanic and non-Hispanic (See Tables 3 and 4)

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Key Findings
Table 5 Probability of Homeownership Proximity
to Homeowners in 1995 (t-ratios clustered by the
1995 U.S. place of residence)a,b
Hispanic Households Hispanic Households Hispanic Households
1995 household heads who are homeowners and who are Full Sample Speak Only English Do Not Speak Only English
Own ethnicity/race and WEAK English Ability 2.4694 2.7853 2.4493
Own ethnicity/race and WEAK English Ability (4.66) (2.13) (4.14)
Own ethnicity/race and STRONG English Ability 0.0613 0.1065 0.0468
Own ethnicity/race and STRONG English Ability (1.73) (1.54) (1.30)
NOT own ethnicity/race and WEAK English Ability -0.0570 -0.0091 -0.0715
NOT own ethnicity/race and WEAK English Ability (-0.46) (-0.03) (-0.50)
NOT own ethnicity/race and STRONG English Ability 0.0110 0.0528 0.0248
NOT own ethnicity/race and STRONG English Ability (0.13) (0.35) (0.26)
Observations 10,278 2,761 7,517
Source Bureau of Labor Statistics
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Key Findings
Table 5 Probability of Homeownership Proximity
to Homeowners in 1995 (t-ratios clustered by the
1995 U.S. place of residence)a,b
Hispanic Households Hispanic Households Hispanic Households
1995 household heads who are homeowners and who are Full Sample Speak Only English Do Not Speak Only English
Own ethnicity/race and WEAK English Ability 2.4694 2.7853 2.4493
Own ethnicity/race and WEAK English Ability (4.66) (2.13) (4.14)
Own ethnicity/race and STRONG English Ability 0.0613 0.1065 0.0468
Own ethnicity/race and STRONG English Ability (1.73) (1.54) (1.30)
NOT own ethnicity/race and WEAK English Ability -0.0570 -0.0091 -0.0715
NOT own ethnicity/race and WEAK English Ability (-0.46) (-0.03) (-0.50)
NOT own ethnicity/race and STRONG English Ability 0.0110 0.0528 0.0248
NOT own ethnicity/race and STRONG English Ability (0.13) (0.35) (0.26)
Observations 10,278 2,761 7,517
Source Bureau of Labor Statistics
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Key Findings

• Adding 1 percentage point more weak
  English-speaking Hispanic homeowners to the
  population in the 1995 place of residence
• Strongly increases the propensity of Hispanic
  families to own a home regardless of the own
  ability to speak English
• 2.78 percentage point effect on Hispanic families
  that only speak English
• 2.45 percentage point effect on other Hispanic
  families
• Marginal effects of proximity to strong
  English-speaking homeowners in 1995 are much
  smaller

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Key Findings

• What generates this result?
• The importance of proximity to weak as opposed to
  strong English-speaking homeowners is
• Not likely to be endogenous
• Families eager to own are unlikely to seek
  opportunities to live near weak English-speaking
  homeowners
• Instead

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Key Findings

• Two mechanisms seem especially likely to account
  for our results
• The presence of weak English-speaking Hispanic
  homeowners could signal the presence of local
  programs/services that facilitate homeownership
  among Hispanic families
• Consistent with Waldfogel (2003) and George and
  Waldfogel (2003)
• Weak English-speaking homeowners may also provide
  role models and thereby encourage homeownership
  among other Hispanic families
• Consistent with Evans, Oates, and Schwab (1992)
• We cannot distinguish between these two mechanisms

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Key Findings

• Important to also note that
• There are many more Hispanic homeowners with
  strong as opposed to weak English-speaking
  ability
• This causes the total spillover effects from 1995
  proximity to these groups to be about the same
• On average, the total impact of proximity to
  Hispanic homeowners in 1995 is to raise the
  year-2000 Hispanic propensity to own
• By 2.22 percentage points for the 1995 presence
  of weak English-speakers
• By 2.52 percentage points for the 1995 presence
  of strong English-speakers

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Policy Implications

• At the margin
• Promoting homeownership among Hispanic families
  will likely have two important effects
• Elevate homeownership among program participants
• Generate spillover effects throughout the
  Hispanic community that further encourage
  homeownership
• This latter effect has been the focus of this
  study
• These spillovers effects are likely to be
  especially strong when programs target weak
  rather than strong English-speaking families