Most bankers know that the Hispanic population in the United States is growing rapidly and that, like many other Americans, those in the Hispanic community dream of homeownership.
In fact, many Hispanic renters characterize themselves as "very likely" or "somewhat likely" to buy a home within the next three years. What most bankers may not realize, however, is the extent of inaccurate or incomplete information that Hispanic households have about the home buying process.
Despite this "information gap," prospective Hispanic homebuyers indicate they are willing to attend free classes on the home buying process. These aspirations afford bankers the opportunity to help both their community and their banks. Bankers who work to close the information gap and increase successful Hispanic homeownership may also gain bank customers and expand their mortgage portfolios.
Understanding the information gap
Financial, legal and insurance documents are integral parts of the home buying process, yet a 2004 poll identified these types of documents as three of the five most perplexing information sources in Americans' daily lives.
Although a mortgage application is the document that starts the home buying process, it was identified by many Americans as the most difficult document to understand. Sixty percent of the poll respondents rated mortgage applications as either "somewhat difficult to understand" or "very difficult to understand." Clearly, many prospective homeowners, even when they understand English, find the purchase of a home to be a daunting process.
Further, the process itself is often very different in other countries than in the United States. For example, "immigrants from high down-payment countries such as Korea, India or those in Central and South America often greatly overestimate the minimum down payment needed in the United States." Similarly, differing cultural influences can be a hindrance for prospective Hispanic homeowners.
The process may be even more daunting for Americans who do not speak English or speak it only as a second language. A recent study of Hispanic renters and recent first-time buyers found that "prospective home buyers either have no information, or even worse, misinformation" about the home buying process.
The 2003 Fannie Mae Housing Survey found sizable differences in the information gap between the general population and various minority communities (see Table 1).
The survey defines the "Spanish Hispanic" population as those in the Hispanic population who both speak and read Spanish more frequently than English at home, and defines the "English Hispanic" population as those in the Hispanic population who either speak or read English more frequently than Spanish at home.
An ethnographic study found that some families did not know that first-time homeowner programs existed or that there were subsidized programs to make financing easier. A 2001 study cited "lack of information, confusion or even fear about the home buying process" as obstacles to homeownership for lower-income, minority and immigrant families.
Another study reported that 64 percent of the Hispanic population who are planning to buy homes in the next five years saw their unfamiliarity with the mortgage process as one of their biggest challenges.
In addition, Hispanic consumers who do not know where to go for assistance may fear or distrust mainstream institutions and can be vulnerable to predatory realtors and lenders; they need to know and understand their options regarding whether to use federally insured depository institutions or unregulated mortgage providers.
The lack of clear, understandable information about the home buying process is another significant part of the overall homeownership information gap.
The information gap, especially when combined with a possible affordability gap and perceived credit gaps, has reduced the home buying confidence of some members of the Spanish Hispanic population. While the English Hispanic population is nearly as confident as the general population that they can complete the various home-buying steps, the Spanish Hispanic population is less confident; for example, more members of the Spanish Hispanic population are less confident about obtaining a mortgage and finding a real estate professional.
This lack of confidence, fed in large part by the information gap, is a likely contributor to an actual gap in homeownership statistics. In 2003, 68.3 percent of the total U.S. population owned homes versus 47.4 percent of the Hispanic population, which shows that there is an appreciable homeownership gap in the United States. Therefore, it seems likely that bankers could use financial education to dispel commonly held misconceptions, help bridge the information gap and increase Hispanic homeownership.
Raising Hispanic homeownership rates and increasing bank business
The Hispanic population is the largest and fastest-growing ethnic group in the United States. Much of the recent growth has been in states such as Georgia and Nebraska, which have not previously been recognized as "Hispanic entry states." This new growth is not only in urban centers but also in rural and suburban areas.
Moreover, the number of affluent Hispanic households, while small, is increasing rapidly -- U.S. Census data show that the number of Hispanic households with incomes higher than $75,000 tripled between 1990 and 2000.
As the purchasing power of the Hispanic population increases, their need for financial services may be expected to increase as well. Reaching out to the Hispanic population is no longer just a good idea in the historically well-known Hispanic enclaves in Arizona, California, Florida, New York and Texas, but also in many other states across the Southeast and Midwest and, indeed, nationwide.
Henry Cisneros, president and CEO of American CityVista, projects that the Hispanic population could buy some 3 million homes by 2010. This potentially large market offers an opportunity for bankers to increase their mortgage portfolios.
Given the situation outlined above, what exactly should banks do? Some prospective homeowners face wealth, income and supply gaps as well as an information gap in terms of homeownership. There are strategies that bankers can use to address each of these gaps (see Table 2).
It is interesting to note that the strategies with the lowest risks and program costs -- outreach, group training and individual counseling -- are those that address the information gap. Bankers can use these strategies to reach out to the many prospective Hispanic homeowners who do not face the other gaps because of either rising affluence or the pooling of family resources.
An increasing number of organizations, including financial services institutions, have concluded that the net effect of reaching out to prospective Hispanic homeowners is positive. A chief operating officer of a North Carolina mortgage broker, a strong proponent of having bilingual employees, says that "some companies will commit to (having bilingual operations) with foresight, some folks will do it because that's the only way they can get back lost market share. But those who have the foresight will do better." Clearly, many organizations see that bridging the prospective Hispanic homeownership gap is good for business.
Finding resources to help banks close the gap
Numerous organizations can help bankers close the larger information gap that prospective Hispanic homeowners face. The following are some of the resources available and a short description of what they provide.
¥ Federal Deposit Insurance Corp. -- The Money Smart financial education classroom curriculum and the new computer-based instruction version, which is available as a CD-ROM and on the Federal Deposit Insurance Corp.'s (FDIC) Web site, are available in Spanish. For information and instructions on how to obtain copies of the curriculum, click on the FDIC Money Smart link at www.fdic.gov or call (202) 942-3404.
* U.S. Department of Housing and Urban Development -- An extensive English-Spanish home-buying dictionary and a Spanish mortgage glossary are available at the U.S. Department of Housing and Urban Development (HUD) Web site at www.hud.gov/buying/index.cfm. HUD also offers a booklet entitled "Buying Your Home: Settlement Costs and Information," which is available in Spanish and can be downloaded either as a Microsoft Word or PDF file. In addition, prospective homeowners can speak to Spanish translators on the HUD's housing counseling hot line at (800) 569-4287.
* Fannie Mae -- A Web-based tool for counselors called Home Counselor Online is available in English and Spanish on Fannie Mae's Web site at hco.efanniemae.com/hco/. For more information, call Fannie Mae's Customer Contact Center at (877) 722-6757 (toll free) or access its general Web site at www.fanniemae.com.
* Freddie Mac -- An 11-module credit curriculum is available from Freddie Mac in English and Spanish. An overview of Freddie Mac's credit program is available in Spanish at www.freddiemac.com/creditsmartespanol, and workshop information is available from Freddie Mac's eight partners via links from its Web site at www.freddiemac.com/creditsmart/partnership/our_partners.html.
* Fannie Mae Foundation -- Four free guides are available from the Fannie Mae Foundation in English and Spanish to assist prospective homeowners. The guides can be ordered by phone by calling (800) 611-9566 as well as downloaded or ordered for delivery by mail from the Fannie Mae Foundation Web site at www.homebuyingguide.com.
* Congressional Hispanic Caucus Institute National Housing Initiative -- The Congressional Hispanic Caucus National Housing Initiative is a nonprofit, bipartisan effort to increase homeownership opportunities for Hispanics across the country and works with Fannie Mae and other national housing institutions. It produced Focus Group Findings: Cross-Site Report (www.chci.org/nhi/cross_site.pdf), which provides an in-depth look at the barriers to Hispanic homeownership and suggests strategies and best practices to address the barriers.
* New Alliance Task Force -- The New Alliance Task Force is a partnership between the FDIC, the Mexican Consulate, banks, community-based organizations, federal regulators, the secondary market and private mortgage insurance companies. The partnership has opened 50,000 new bank accounts totaling $100 million. For more information on the New Alliance Task Force efforts, see "Linking International Remittance Flows to Financial Services: Tapping the Latino Immigrant Market," by Michael A. Frias, Supervisory Insights, Federal Deposit Insurance Corporation, Winter 2004, www.fdic.gov/regulations/examinations/supervisory/insights/siwin04/latino_mkt.html.
* America's Community Bankers -- Brochures are available from America's Community Bankers in English and Spanish on credit, homeownership and financial basics through its Money Rules series. For more information and prices, go to www.americascommunitybankers.com/tools/toolsbody.asp# or call (888) 872-0568 (toll free).
* An online homeownership program in Spanish is available as an alliance between America's Community Bankers and Genworth Financial. The program, called Tu Casa Ahora (Your Home Now), is at www.tucasaahora.com. Tu Casa Ahora provides potential homeowners with instructions on the mortgage process, interactive tools to calculate payments and analyze rates, and access up to $2,000 in discounts and special offers on home-related products and services. Members of America's Community Bankers can be listed under a section of the Tu Casa Ahora Web site that helps homeowners find lenders who are familiar with the needs of the Hispanic community and offer Spanish language services. Lenders can also link their Web site directly to Tu Casa Ahora.
* Realtors and builders -- The National Association of Hispanic Real Estate Professionals, although based in California, hopes to soon have chapters in every state. Bankers can join the association and list their loan officers with the online referral directory for prospective homeowners. Visit www.realestateespanol.com/Professionals/MainMenu.html or call (800) 964-5373 for more information.
* The builder Pulte Homes has a Spanish-language Web site at www.espanol.pulte.com, where prospective homeowners can search for a new home.
* Bilingual employees -- Bilingual employees are an excellent resource for bankers. However, some bankers may not be able to add permanent bilingual employees to all their branches. Another resource is to partner with an education provider. For example, www.bilingualuniversity.com is a Web site that offers mortgage training for Spanish-speaking loan officers in partnership with Mortgage-Education.com, an Internet-based continuing education provider for mortgage professionals.
Credit repair and financial literacy, which are the keys to reaching Hispanic consumers, may be achieved by staffing with Spanish speakers, providing materials in Spanish and focusing on homeowner education.