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Hablar Espanol: Your Next Client Is Likely To Be Hispanic
Gary Acosta was invited recently to sit in on a board of advisors meeting for a company that’s expanding its consulting services to include diversity training in the real estate sector. The founder and now CEO of the National Association of Hispanic Real Estate Professionals came away less than impressed.
Acosta would not disclose the name of this outfit, but he did gripe about what he saw as an effort to “trivialize a critical problem by turning a movement into a racket.” While the company in question had a noble goal, he pointed out, it has no history of diversity, has almost no diversity in its leadership group and is best known for producing conferences. It also happens to produce a so-called “most influential” list in which the only diverse faces are at the bottom, he said, “huddled together like that scene from Animal House where Kent and Larry were rushing the Omega House.”
I, too, am a fan of National Lampoon’s 1978 classic film. But more to the point, Acosta worries that realty firms and mortgage companies will hire firms like this. That, in his words, they “will take the easy way out by hiring fly-by-night diversity consultants rather than making material efforts to bring about honest change.” A better choice, the NAHREP leader said, would be a Latino-owned corporate consulting firm. “There are plenty with strong track records.”
The New Market
The question isn’t why you might want to follow Acosta’s suggestion. It’s why you should. According to a recent report from the Urban Institute, Latinos will account for more than 70 percent of the growth in home ownership over the next 20 years.
That’s not a typo: While the nonpartisan think tank says the ownership rates for every other racial demographic will decline over the next two decades, seven in ten of ALL future buyers will be of Hispanic origin. Age and population growth are key factors in that assessment, but Acosta also notes that Latinos are willing to migrate almost anywhere and everywhere jobs and affordable housing exists. “There’s no question the passion is there,” he says. “They didn’t come here to be renters.”
According to the latest State of Hispanic Ownership Report from NAHREP, the rate of ownership among Latinos was not quite 49 percent last year. That’s not as high as it was in 2006 and 2007, the “go-go” years running up to the Great Recession when the rate topped out at nearly 50 percent. But the number of Hispanic home owner households reached 8.88 million, the highest it’s been in the 11 years the group’s report has been produced. That’s an increase of 725,000 owner households, the biggest single-year jump since 2000. In comparison, the next largest increase was 414,000 in 2002.
(FYI: The terms Hispanic and Latino are used interchangeably in the report, so I am doing the same here. Also worth mentioning is that NAHREP has some 40,000 members nationwide. That’s more than five times as many as the National Association of Mortgage Brokers’ 7,665. The group counts not only realty agents and brokers as members but also mortgage professionals as well as other allied professionals. Acosta himself built several mortgage companies and was a co-founder of the Mortgage Collaborative, where he is still vice chairman.)
Driven By Youth
Moving forward, the Urban Institute says, age will drive the projected increase in Latino ownership. Hispanic households are much younger than their Black and White counterparts, with a higher proportion in their 20s, 30s and 40s. Those, of course, are the prime years for buying houses, and together represent the single “biggest catalyst” for Latinos, says Noerena Limon, NAHREP’s executive vice president for public policy and industry relations. That the median age of Latinos is 29.8 years – 14 years younger than any other ethnic group – means the desire to own a home “is going to last way into the future,” says Limon. “They are the future of the housing market.”
According to the State of Hispanic Ownership Report, some 8.3 million Latinos under age 45 are now “mortgage ready.” But that’s not to say they don’t face considerable barriers to ownership. One, obviously, is a lack of affordable houses. But that’s something faced by all-ilk of would-be buyers, not just Hispanics.
But because they are younger, they tend to have lower incomes and less wealth. Because they are “over-represented” in the service industry, they have the highest rate of unemployment thanks to the pandemic. And even when working, they have the greatest pay discrepancy, earning just 55 cents for every dollar paid to White males.
Their credit scores tend to be lower as well – a median of 668, according to the State of Hispanic Ownership Report – and their all-important debt-to-income ratio is a median 41 percent. Also, they tend to put down as little of their own money as possible, a median of 3.5 percent. Consequently, they are “particularly vulnerable to underwriting changes.”
(By the way, Latinos are not necessarily a homogeneous group. They come from 20 different Latin America countries and from different races, socioeconomic and migration backgrounds. Guatemalans, Dominicans and Hondurans have an ownership rate of just 32 percent, for example, while the rate among Afro-Latinos is 47.5 percent.)
These trends and issues mentioned have not been lost, not on big banks or mortgage companies. “We need to focus even more” on the Hispanic market, Kristy Fercho, executive vice president of home lending at Wells Fargo, told NAHREP at its recent annual conference. “We really have to get diligent.” And Mark O’Donovan, CEO of home lending at JPMorgan Chase, agreed.
“It’s imperative that we focus” on the Latino segment of the market,” he told the group. “It’s not just the right thing to do. It’s a chance to grow as a business.”
Bigs Step Up
Chase, Wells and many other national banks have made major commitments to further minority ownership. Chase, for example, has promised $30 billion over the next five years to, among other things, originate an additional 40,000 home purchase loans for Black and Latino households, help an additional 20,000 households refinance into less expensive loans, and open 100 branches in underserved areas.
Bank of America is investing $60 million – $30 million in loans and $30 million in equity financing – to support Enterprise Community Partner’s five-year initiative to help facilitate racial equality in housing. The investment will increase access to capital and career opportunities for BIPOC (Black, Indigenous and People of Color) leaders developing multi-family, affordable and supportive housing across the country.
Still, independent mortgage bankers and brokers may hold the key to unlocking the Hispanic market, and not just because they often are willing to take a little more risk. Bankers and brokers can take on the “trusted advisor role” many Latinos are looking for.
“That’s more important to Hispanics and that’s what we’re good at,” James Hecht, executive vice president for retail lending at Caliber Home Loans, told another session at the NAHREP meeting.