The American Dream can be a reach
A few months ago, one of my mom’s employees tried to get a small short-term loan from a local bank in order to help his mom in Guatemala rebuild her house that was destroyed by a recent earthquake.
Aniceto, who has worked for my mom for at least 10 years does not make a lot of money by Marin standards, but his income is consistent and he has a great credit rating. Bank after bank turned him down. He ended up borrowing money from my mom and he pays her back monthly.
It seems crazy to me that a tax-paying individual that has a social security number and is waiting for his official green card is unable to borrow even $10,000 from a local bank. If they can’t borrow, it is impossible for them to lease a car or even buy a house.
A quick search of statistics from the National Community Reinvestment Coalition provided the following barriers this population faces:
Hispanics paid a significant premium to borrow money up to 30% more in interest
Closing costs and interest rates were substantially higher for Hispanic borrowers than for non-Hispanic White borrowers. Hispanic homebuyers paid 43% more to close on a home purchase loan than non-Hispanic White applicants
20% of Hispanic applicants were denied a loan in 2019, 43% higher than the denial rate for non-Hispanic White applicants mostly because of issues with debt-to-income ratio (DTI) and credit.
Latino borrowers were underserved by banks. In 2019, just 24% of home purchase loans to Hispanic applicants came from a bank. This was the lowest level of bank lending to any race in 2019. Instead, these borrowers relied on mortgage companies for over 70% of their home purchases, a far higher share than any other group.
Hispanic borrowers were not a homogenous group. In most cases, they reported identifying with at least one additional subgroup, including Cuban, Mexican, and Puerto Rican. Specific communities were especially dependent on government-backed lending programs such as VA and FHA.
Despite facing barriers and disparate treatment in the mortgage market, Latino borrowers show strong interest in homeownership, the majority of home loans that were made to Hispanics were concentrated in the states of Texas, California, Florida, and Arizona. In addition, Latinos made up a substantial share of the mortgage market in states including New Mexico, Nevada, Colorado, and New Jersey. While one in three Hispanic borrowers overall relied on government loans programs, over half (52%) of Puerto Rican borrowers received a government-insured loan.
Fortunately, Hispanics and Latinos have been able to benefit from civil rights laws like the Community Reinvestment Act (CRA), which have helped to lessen the discrimination in the housing market and have encouraged banks to serve the credit needs of local communities, including home loans. Many non-bank lenders are not held to the same standards as banks, including those governed by the CRA, that ensure mortgage borrowers have access to high-quality loans, and are protected against predatory terms or can avoid unsustainable loan options. In addition, in recent years Credit Unions such as the Cooperativa Latino Credit Union have been able to provide much needed services to Hispanic and Latino populations.
It will be important for both federal governments and state government to back mortgage companies, banks and credit unions in order to provide mortgages and short-term loans for a potentially risker populations. The federal government should lead and states should be able to follow in suite
Sources
https://singlefamily.fanniemae.com/media/16176/display
https://ncrc.org/hispanic-mortgage-lending-2019-analysis/
Hispanic Mortgage Lending 2019 HDMA Analysis. Agatha So, MSW, Senior Policy Analyst, Economic Policy Project, UnidosUS and Jason Richardson, Director, Research & Evaluation, NCRC