New finance system can give Hispanics the key to home ownership



The housing crisis hit Hispanic families particularly hard. Yet it is the Hispanic community that is poised to drive growth in the housing market in future decades.

The goal of owning a home is deeply rooted within Hispanic culture. For many, owning a home is a symbol of success and achievement and is considered an important element of providing for one’s family. Homeownership is also a major avenue for wealth accumulation. In fact, home equity accounts for 67 percent of the net wealth of Hispanic homeowners, even with the overall decline in home prices over the past several years.

The aspiration for homeownership has historically helped grow and sustain the American middle class, the pillar of our national economy and society. That’s why supporting the desire within the Hispanic community for homeownership is squarely in our national interest.

Despite the strong commitment to homeownership, Hispanics suffered during the housing downturn. Dropping nearly four percentage points since 2007, the Hispanic homeownership rate now stands at 45.9 percent, well below the national rate of 65 percent. Thousands of Hispanic homeowners are still “underwater” on their homes, while thousands more lost their homes to foreclosure. Some were victims of practices like “reverse redlining” and “steering” borrowers into riskier mortgages that led to higher default rates.

As the housing market recovers, the impact of the Hispanic community is already being felt. According to a report by the National Association of Hispanic Real Estate Professionals (“NAHREP”), Hispanics accounted for 51 percent of the total net increase in homeowner households in the United States in 2012. It is hard to see how today’s recovery in home prices would be possible without the demand created by Hispanic families.

The NAHREP report also details why Hispanics will be a dominant force in the market for years to come. First, the Hispanic community is growing dramatically, with some experts predicting the Hispanic share of the overall population climbing to 29 percent by the year 2050. Second, the purchasing power of Hispanics is on the rise and exceeded $1 trillion in 2012. Third, Hispanic educational levels are increasing, with Hispanics now the largest minority group on our nation’s college campuses.

All these factors point to a future in which Hispanic families will continue to be a critical source of demand for purchases of new and existing homes.

This future will be realized, however, only if our nation has a stable housing finance system that provides access to affordable mortgage credit for families in all geographic markets, without discrimination, bias, or limitations to access that are not based on sound underwriting and risk management.

Unfortunately, the current system in which the government guarantees more than 80 percent of all mortgages is unsustainable over the long term. In addition, the very narrow “credit box” through which mortgage-lending decisions are made today, with unnecessarily rigid down payment and debt-to-income requirements, is blocking homeownership opportunities for working families across the country.

In Housing America’s Future: New Directions for National Policy, the Bipartisan Policy Center Housing Commission has put forward a comprehensive plan for an entirely new system of housing finance. Under the plan, the private sector will play a far greater role in bearing mortgage-credit risk, with the government functioning as an insurance backstop of last resort to ensure the uninterrupted flow of affordable mortgage credit.

A key goal of the plan is the preservation of the 30-year fixed-rate mortgage, which has allowed millions of low- and moderate-income families to achieve their dreams of homeownership. Stretching out the payment horizon over 30 years helps keep monthly payments low and provides certainty to borrowers by protecting them against interest rate volatility over the life of the loan. In the coming years, achieving the full potential of Hispanic homeownership will depend on the continued availability of this vital mortgage product.

Other elements of the plan include promoting the widespread availability of housing counseling for first-time homebuyers as well as a return to the sound underwriting standards in place before the housing bubble with their focus on the overall creditworthiness of the borrower. The evidence is strong that counseling can help families make informed decisions about whether they are ready to assume the obligations of homeownership. And there is ample research demonstrating that solidly underwritten fixed-rate mortgages can responsibly open the door to homeownership for families with limited savings.

We are excited about the potential of homeownership to help lift millions of Hispanic families into the ranks of the middle class. Responsibly tapping this potential will inject new vitality into the housing market and create a stronger, more prosperous America.

Henry Cisneros served as secretary of Housing and Urban Development in the Clinton administration. Former U.S. Sen. Mel Martinez served as secretary of Housing and Urban Development in the Bush administration. Janet Murguía is the president and CEO of the National Council of La Raza. All are members of the Bipartisan Policy Center Housing Commission.

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