hispanic homeownership seminar u.s. department of housing and urban development thursday, june 1,...

Hispanic Homeownership Seminar

U.S. Department of Housing and Urban DevelopmentThursday, June 1, 2006

Hispanic Homeownership Seminar - June 1, 2006 2

Improving Hispanic Homeownership Opportunities: A Review of the

Literature

Alvaro CortesChris HerbertErin Wilson

Elizabeth Clay


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


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


Hispanics Are Disproportionately Low Income…

44%

34% 33% 32%

22%

34%

0%

10%

20%

30%

40%

50%

<$30K $30-60K >$60K

Household Income

Share of Households

Hispanics

Non Hispanics

Source: 2000 Decennial Census


…Have Limited Wealth…

29%

13%17%

8%14%11%

15% 13%

25%

56%

0%

10%

20%

30%

40%

50%

60%

$0 orLess

$1-4,999 $5,000-19,999

$20,000-49,999

$50,000+

Share of Households by Net Weatlh

Hispanics All Households

Source: SIPP 1999-2000


…Low Levels of Education…

46%

16%

43%

57%

11%

27%

0%

15%

30%

45%

60%

75%

Less thanHigh School

High SchoolGraduates

CollegeGraduates

Share of Households

Hispanics

Non Hispanics



…and Are Much Younger

35%

21%

27%

22%18%

20% 20%

40%

0%

10%

20%

30%

40%

50%

<35 35-44 45-54 55+

Share of Households

Hispanics

Non Hispanics



But Hispanics Are More Likely to Be Married with Children

38%

23%20%

30%

24%

15%18%

32%

0%

10%

20%

30%

40%

50%

Marriedwith Kids

MarriedNo Kids

OtherFamily

Non-Family

Share of Households

Hispanics

Non Hispanics



Immigrants Account for Large Share of Hispanic Households

53%

32%

25%

0%

10%

20%

30%

40%

50%

60%

Foreign Born Non-Citizen Limited English

Share of Hispanic Households



Although Most Hispanics Have Lived in the U.S. for Many Years

47%

20% 19%

8% 7%

0%

10%

20%

30%

40%

50%

60%

NativeBorn

21+ 11-20 6-10 0-5

Years in U.S.

Share of Hispanic Households



Great Diversity Among Hispanic Immigrants

Country of Origin Among Hispanic Households

Mexico63%

Dom. Rep.4%

South Amer.6%

Puerto Rico14%

Cuba6%

Central Amer.6%

Spain1%



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


Hispanic Homeownership Rates Have Risen Sharply Since 1993

49.5%

39.0%

41.2%

35%

40%

45%

50%

55%

83 85 87 89 91 93 95 97 99 '01 '03 '05

Source: Current Population Survey


But Hispanic-White Homeownership Gaps Remains High as White Rates Also Increased

26.3%

30.8%

27.9%

20%

25%

30%

35%

'83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05

Source: Current Population Survey


Homeownership Gaps Differ by Country of Origin…

12%15%

24%

31%

38%41%

52%

0%

10%

20%

30%

40%

50%

60%

Spain Cuba Mexico SouthAmer.

PuertoRico

CentralAmer.

Dom.Rep.



…And by Years in the U.S. …

9%

16% 16%

21%

29%

39%

49%

56%

0%

10%

20%

30%

40%

50%

60%

1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-2000



…Which is Reflected in Differences in Gaps by Region

45%

26%

21% 21%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Northeast Midwest South West



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


Determinants of Hispanic Gaps (cont’d)

• 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


Determinants of Hispanic Gaps (cont’d)

• 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


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


Primary Barriers (cont’d)

• 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


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


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)


Efforts to Improve Homeownership Opportunities for Hispanics: Case

Studies of Three Market Areas

Alvaro CortesErin Wilson

Chris HerbertPedram Mahdavi


Overview

1. Objectives of the Research

2. Approach to Site Selection

3. Cross-cutting findings

4. Market–specific findings from Orlando (FL), San Antonio (TX), and Washington DC


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


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.


Site Selection

Characteristics of Selected Markets

Characteristic Orlando San Antonio Washington DC Country of Origin 55% Puerto Rican 72% Mexican 75% Other % Non-Citizen 19% 12% 49% % of Population 17% 51% 9% Housing Affordability1

31% 41% 28% Homeownership Gap -18 %-pts. -9 %-pts. -28% -pts. 1 Hispanic median income as a percent of area median housing price


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.


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.


Cross-cutting Findings

4. Service providers operate within their preferred network of providers; service coordination is fragmented across metropolitan areas.

5. There is a strong demand for homeownership services among Hispanics, but the capacity to serve these clients is increasingly strained.


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 area’s overall growth.


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.


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.


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.


Review of Selected Underwriting Guidelines to

Identify Potential Barriers to Hispanic Homeownership

Kimberly BurnettAlvaro CortesChris Herbert


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


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


Establishing Credit History

• Barrier: Many immigrants lack credit reports with one of the major credit repositories

• The GSEs and FHA’s 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 – FHA’s standard product allows the most flexibility among prime

products

– The GSEs have targeted products that offer flexibility

– GMAC approves borrowers with low credit scores


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 FHA’s standard product and some of the GSEs’ targeted products.


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 FHA’s 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.


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.


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


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


Language, Agglomeration, andHispanic Homeownership

Don Haurin

and

Stuart Rosenthal


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


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


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 family’s social network

– These effects are also likely to be especially sensitive to whether nearby homeowners speak English


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 household’s attributes and homeownership status in 2000


Empirical Strategy

• PRIMARY EMPIRICAL GOALS

• Evaluate the degree to which the presence of homeowners in the family’s 1995 place of residence affect the family’s 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


Empirical Strategy

• We control for the presence of four types of homeowners in the 1995 place of residence

– Homeowners of the family’s own ethnicity/race who are

» Weak English-speaking

» Not weak English-speaking

– Homeowners not of the family’s 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


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.

– Head’s English-speaking ability

– MSA of residence in 2000 through MSA fixed effects


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


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)


Source: Bureau of Labor Statistics

Key Findings

Table 5Probability of Homeownership – Proximity to Homeowners in 1995

(t-ratios clustered by the 1995 U.S. place of residence)a,b

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

(4.66) (2.13) (4.14)

Own ethnicity/race and STRONG English Ability

0.0613 0.1065 0.0468

(1.73) (1.54) (1.30)

NOT own ethnicity/race and WEAK English Ability

-0.0570 -0.0091 -0.0715

(-0.46) (-0.03) (-0.50)

NOT own ethnicity/race and STRONG English Ability

0.0110 0.0528 0.0248

(0.13) (0.35) (0.26)

Observations 10,278 2,761 7,517


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


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 …


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


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


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

hispanic homeownership seminar u.s. department of housing and urban development thursday, june 1,...

Documents

hispanic homeownership

hispanic homeownership

hispanic population

hispanic immigrants

number of hispanic households

decennial census slide

lower homeownership

pp lower hispanic incomes