Hispanic Homeownership at a Crossroads
HISPANICS and other minorities in America face a significant housing crisis today. While Hispanic homeownership is at its all-time high approximately 47 percent of Hispanic heads of households own their homes the rate still lags behind their white counterparts, who enjoy a 76 percent homeownership rate.
According to a recently released study, "The Roof Over Our Heads," by Esperanza USA, Hispanics are also more likely to pay more than half of their household income on housing expenses than their white counterparts and face a higher rate of home-mortgage denial.
Esperanza USA, the largest Hispanic faith-based community-development corporation in the country, is intimately involved with serving housing needs for Hispanic communities and creating infrastructure needed to support strong neighborhoods. Through mortgage counseling, financial literacy and capacity building programs, we see firsthand the increased challenges faced by first-time Hispanic homeowners.
All prospective homeowners face challenges when purchasing a home: credit scores, ability to save for closing costs and down payments; and access to affordable housing. These problems are exacerbated for Hispanics. Esperanza's recent study found that while the number of mortgages approved for Hispanics families increased 236 percent from 1993 to 2003, Hispanics still have lower mortgage-approval rates than non-Hispanic Whites; the median income of Hispanic homeowners is far lower than that of whites; and the nation's Hispanic population is also disproportionately concentrated in relatively expensive urban-housing markets, such as Los Angeles and New York City.
Fortunately, there are organizations in this country working hard to make the dream of affordable homeownership a reality for more Americans, specifically government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac. These fundamental financial institutions play a critical role in helping minorities to secure affordable mortgages.
By creating secondary markets, bank capital is freed to provide more loans. Although low-income loans are a minute percentage of the total market, the greater the amount of available capital, the greater number of loans can be issued for low-income homeowners.
Congress is considering reforms that would severely compromise the positive and significant roll Freddie Mac and Fannie Mae play in increasing minority homeownership opportunities. We are all aware of the accounting problems that faced these two entities. While all GSEs should be held to accurate reporting standards and strict accounting principles, it is critical to note that none of the accounting problems go to the core stability and purpose of the organizations. They remain well-positioned to continue to serve the mortgage market.
Politics is nothing if not the law of unintended consequences. Great care is needed not to reverse recent increases in minority homeownership, especially those of Hispanic Americans. Congress must keep the basic principles of the government-sponsored enterprises in tact when addressing the overall reforms of Fannie Mae and Freddie Mac. Targeted reforms rather than sweeping policy changes should be the order of the day. A reckless approach to reform would be worse than no reform at all.
Should reform-minded lawmakers have an interest in increasing minority homeownership, I respectfully suggest Congress require Fannie Mae and Freddie Mac direct 5 percent of their profits to purchase low-income mortgages. This amount is half of the Federal Home Loan (FHL) banks' current 10 percent requirement, a requirement that has released millions into the low-income markets. Requiring Freddie and Fannie to direct a percentage of their profits specifically for this purpose would unleash a new housing economic engine, increasing minority homeownership opportunities through the country's most efficient and effective market.
Freddie Mac, Fannie Mae, and the FHL banks serve as the financial backbone of America's housing market, providing the tools and programs necessary to help make homeownership affordable for millions of American families. Their continued strength represents a cornerstone of the efforts of Esperanza and other organizations like ours to improve the housing situation for minorities across the country.
The Rev. Luis Cortes Jr. is the president and CEO of Esperanza USA, the largest Hispanic faith-based community-development corporation in the country.