In a 2021 State of Hispanic Homeownership report published by the National Association of Hispanic Real Estate Professionals (NAHREP), Latinos are 81% more likely to be denied mortgage financing for a conventional home loan than white applicants. Median white households possess more than five times the wealth of median Latino households, boosting their options of having on-hand all-cash offers or easily qualifying for pre-approval in the current hot real estate market because of intergenerational wealth disparities. These all play a crucial role in the current homeownership gap.
Achieving the dream of homeownership is a significant accomplishment for most everyone; however, the barriers faced by Black and Latino homebuyers are greater, especially first-time homebuyers, still hampered by racial discrimination, income inequality, and the lasting effects of predatory lending and redlining.
Bias in home appraisals for those two groups of color results in lower rates of homeownership. In a 2021 study by Freddie Mac, Blacks and Hispanics are more likely to experience undervalued homes in neighborhoods where they are a majority compared to majority-white communities. Data extrapolated from more than twelve million appraisals conducted between January 2015 to December 2020 showed that 15.4% of Latino census tracts were appraised at values lower than the contract price compared with 7.4% of homes in white census tracts.
Those rejected for a conventional home loan often consider mortgages insured by the Federal Housing Administration (FHA) as an alternative. Latinos are twice as likely to opt for this loan than their non-Hispanic White counterparts. These loans appear to be a great option, especially for those with non-traditional credit or lower credit scores. However accessible, they come with a higher cost that includes mortgage insurance or MI, added to the monthly payment for the life of the loan when the borrower opts for the lowest down payment option.
Over the next two decades, Latinos are projected to make up 70% of homeownership growth. Credit unions that serve this growing demographic would be well-positioned with expanded approval guidelines that take much more into account than conventional credit underwriting criteria to meet this demand.
Expanding access to homeownership is a key component of Inclusiv's mission of financial inclusion. Launched in 2005, Inclusiv's mortgage initiative, Inclusiv/Mortgage established a secondary market for member credit unions’ mortgage loans to low- and moderate-income members. Over the years demand has grown significantly with a portfolio now comprised of $26 million in affordable home mortgages originated by more than thirty Community Development Credit Unions (CDCUs) nationwide (as of July 2022.)
Historically, lenders have limited financing to no more than 80% of the home’s loan-to-value due to the inherent risk of extending credit to Individual Taxpayer Identification Number (ITIN) holders and a significant percentage of Latino homebuyers. Despite the overall positive performance of ITIN loans, the secondary market has been slow to adjust risk exposure accordingly. Inclusiv/Mortgage recently began offering approved sellers an outlet for up to 90% loan-to-values on ITIN mortgage loans.