Transcript East Baltimore Development Inc. CONTRACT MANAGEMENT

Hispanic Homeownership Seminar
U.S. Department of Housing and Urban Development
Thursday, June 1, 2006
Improving Hispanic Homeownership
Opportunities: A Review of the
Literature
Alvaro Cortes
Chris Herbert
Erin Wilson
Elizabeth Clay
Hispanic Homeownership Seminar - June 1, 2006
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Goals of the Study
• Describe key characteristics of the Hispanic population
and trends in Hispanic homeownership rates and gaps
relative to whites
• Review what is known about the determinants of Hispanic
homeownership gaps and the principal barriers to
increasing Hispanic homeownership
• Identify existing efforts to promote Hispanic
homeownership and what is known about the
effectiveness of these efforts
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Key Demographic Characteristics
• Hispanics are an increasingly important source of demand
for housing
– Nearly 12 million Hispanic households in 2004 or about 10
percent of all U.S. households
– The number of Hispanic households increased by more than 50
percent between 1990 and 2000 – compared to 12 percent
growth for all households
– Masnick and Di (2003) estimate that Hispanic households will
increase by 7.5 million between 2000 and 2010 – a third of all
growth and nearly as large as growth in white households
• But a variety of characteristics contribute to lower
homeownership rates for Hispanics
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Hispanics Are Disproportionately Low Income…
Share of Households
50%
40%
44%
34%
34%
33% 32%
30%
Hispanics
Non Hispanics
22%
20%
10%
0%
<$30K
$30-60K
>$60K
Household Income
Source: 2000 Decennial Census
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…Have Limited Wealth…
Share of Households by Net Weatlh
56%
60%
50%
40%
29%
25%
30%
20%
17%
13%
8%
10%
14%11%
15% 13%
$5,00019,999
$20,00049,999
0%
$0 or
Less
$1-4,999
Hispanics
$50,000+
All Households
Source: SIPP 1999-2000
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…Low Levels of Education…
Share of Households
75%
Hispanics
Non Hispanics
57%
60%
46%
43%
45%
27%
30%
16%
15%
11%
0%
Less than High School
High School Graduates
College
Graduates
Source: 2000 Decennial Census
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…and Are Much Younger
Share of Households
50%
40%
40%
35%
Hispanics
Non Hispanics
27%
30%
21%
22%
20%
20%
18%
20%
10%
0%
<35
35-44
45-54
55+
Source: 2000 Decennial Census
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But Hispanics Are More Likely to Be Married
with Children
Share of Households
50%
40%
38%
32%
30%
30%
23%
Hispanics
Non Hispanics
24%
20%
20%
18%
15%
10%
0%
Married Married
with Kids No Kids
Other
Family
NonFamily
Source: 2000 Decennial Census
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Immigrants Account for Large Share of Hispanic
Households
Share of Hispanic Households
60%
53%
50%
40%
32%
25%
30%
20%
10%
0%
Foreign Born
Non-Citizen
Limited English
Source: 2000 Decennial Census
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Although Most Hispanics Have Lived in the U.S.
for Many Years
Share of Hispanic Households
60%
50%
47%
40%
30%
20%
19%
20%
8%
10%
7%
0%
Native
Born
21+
11-20
6-10
0-5
Years in U.S.
Source: 2000 Decennial Census
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Great Diversity Among Hispanic Immigrants
Spain
1%
Dom. Rep.
4%
South Amer.
6%
Central Amer.
6%
Country of Origin
Among Hispanic Households
Mexico
63%
Cuba
6%
Puerto Rico
14%
Source: 2000 Decennial Census
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Hispanics Have Been Geographically
Concentrated – Often in Higher Cost Markets –
But Now Are Growing Rapidly in Other Areas
• Slightly more than half of Hispanics live in 30 largest
metro areas compared to a third of all households
• Hispanics are more than 25% of the population in
California, Arizona, New Mexico, and Texas and between
12.5% and 25% of the population in New York, New
Jersey, Florida, Nevada, and Colorado
• Growth rates have been highest in states like North
Carolina, Georgia, and Tennessee
• Mexicans predominate in West and Midwest, are a
majority in the South, but only a small share in the
Northeast
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Hispanic Homeownership Rates Have Risen
Sharply Since 1993
55%
49.5%
50%
45%
41.2%
40%
39.0%
35%
83
85
87
89
91
93
95
97
99
'01
'03
'05
Source: Current Population Survey
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But Hispanic-White Homeownership Gaps
Remains High as White Rates Also Increased
35%
30.8%
30%
27.9%
26.3%
25%
20%
'83
'85
'87
'89
'91
'93
'95
'97
'99
'01
'03
'05
Source: Current Population Survey
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Homeownership Gaps Differ by Country of
Origin…
60%
52%
50%
38%
40%
41%
31%
30%
24%
20%
12%
15%
10%
0%
Spain
Cuba
Mexico
South
Amer.
Puerto
Rico
Central
Amer.
Dom.
Rep.
Source: 2000 Decennial Census
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…And by Years in the U.S. …
60%
56%
49%
50%
39%
40%
29%
30%
21%
20%
10%
16%
16%
9%
0%
1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94
19952000
Source: 2000 Decennial Census
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…Which is Reflected in Differences in Gaps by
Region
50%
45%
45%
40%
35%
30%
26%
25%
21%
21%
20%
15%
10%
5%
0%
Northeast
Midwest
South
West
Source: 2000 Decennial Census
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Determinants of Hispanic-White
Homeownership Gaps
• Much less studied than Black-White Gaps
• Studies that do not include immigration status generally
explain about three-quarters of the observed gap
• Studies including immigration status explain most of
Hispanic-white homeownership gaps
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Determinants of Hispanic Gaps (cont’d)
• Wachter and Megbolugbe (1992) use the AHS and find
that demographic and housing market variables explain
three-quarters of total gap (32 of 41 pp)
– Lower Hispanic incomes are most important factor accounting for
gap
• Flippen (2001) uses data from Health and Retirement
Survey to include wide range of variables about income,
risk aversion, and health
– Explain 21 pp of total gap of 27 pp
– Hispanics income and employment are most important factors,
followed by Hispanics location in high cost markets
– But study only includes those age 51-61
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Determinants of Hispanic Gaps (cont’d)
• Gabriel and Rosenthal (2005) use SCF to examine
importance of credit constraints
– Only explain half of 30 pp total gap
– Credit constraints only account for between 2 and 5 pp of gap
• Coulson (1999) uses CPS and includes controls for
immigration status and finds most of gap is explained –
only 2 percentage points of total 31 percentage point gap
unexplained
– Most important factors are immigration status, age, and location
in high cost markets
– Unexplained gaps are largest for Puerto Ricans (9 pp) and
Cubans (7 pp), while no unexplained gap among Mexicans
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Primary Barriers to Hispanic Homeownership
• Lack of information about homebuying and mortgage
qualification processes
– Particularly an issue for immigrants with limited English
proficiency
• Difficulty in qualifying for mortgage financing due to:
– Poor credit or no credit history
– Undocumented immigrant status
– Difficulty in documenting employment, income and savings
• Housing affordability
– Result of Hispanics’ concentration in high cost markets and the
high share of households with low income and wealth
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Primary Barriers (cont’d)
• Some evidence of discrimination in housing and mortgage
markets
– Paired-testing studies of housing search commissioned by HUD
in 1999 found decline in discriminatory treatment of Hispanics
since 1999
» But some evidence they are steered to Hispanic neighborhoods and
are offered less help with obtaining a mortgage
– HUD study of mortgage pre-application process also found
evidence that Hispanics were given lower estimate of how much
house they could afford, less information on range of mortgage
products available, and were less likely to be given positive
coaching
» But only two markets studied – and discriminatory treatment more
evident in Chicago than Los Angeles
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Efforts to Promote Hispanic Homeownership –
What is Being Done and What Works?
• At the Federal level there are not Hispanic-specific
programs per se, but Hispanics are helped by:
– Efforts designed to assist low-income and low-wealth households
– Efforts designed to assist immigrants
• Hard to catalogue magnitude of existing homeownership
programs since they involve a range of efforts by federal,
state, and local governments, national and local non-profit
organizations, and private sector firms
• Very little is known about the effectiveness of
homeownership policies generally – let alone about efforts
specifically to help Hispanics
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What is Being Done
• Information barriers 
– Homeownership and financial literacy counseling (HUD, many
others)
– Bilingual and culturally-sensitive service delivery approaches
(CBOs, lenders, real estate agents)
• Mortgage market barriers 
– Relaxed mortgage underwriting guidelines (many lenders)
• Financial barriers 
– Downpayment and closing cost assistance (HOME, CDBG,
NeighborWorks, FHLB, State HFAs)
– Income subsidies (Housing Vouchers, RHS Sec. 502, MCC)
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Efforts to Improve Homeownership
Opportunities for Hispanics: Case
Studies of Three Market Areas
Alvaro Cortes
Erin Wilson
Chris Herbert
Pedram Mahdavi
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Overview
1. Objectives of the Research
2. Approach to Site Selection
3. Cross-cutting findings
4. Market–specific findings from Orlando (FL), San Antonio
(TX), and Washington DC
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Primary Objectives
1. Identify the major barriers to Hispanic homeownership in
three local markets.
2. Document the range of services offered by local
providers to improve Hispanics’ access to
homeownership opportunities.
3. Understand the scale of, and demand for,
homeownership services, as well as approaches to
marketing and coordinating services
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Site Selection
• Used 2000 census data to estimated the number of
Hispanic households who would be homeowners if
Hispanics owned homes at the same rate as non-Hispanic
white households.
• Among the 25 markets, we looked for diversity in: country
of origin, share non-citizen, share of population, housing
affordability, and size of homeownership gap.
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Site Selection
Characteristics of Selected Markets
Characteristic
Orlando
San Antonio
Washington DC
Country of Origin
55% Puerto Rican
72% Mexican
75% Other
% Non-Citizen
19%
12%
49%
% of Population
17%
51%
9%
Housing Affordability1
31%
41%
28%
-18 %-pts.
-9 %-pts.
-28% -pts.
Homeownership Gap
1
Hispanic median income as a percent of area median housing price
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Site Selection
• Identified key stakeholders in each market for onsite
interviews, including:
– Housing counselors, affordable housing developers, mortgage
lenders and loan officers, and real estate agents.
• Conducted follow-up telephone interviews as needed.
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Cross-cutting Findings
1. Common barriers: (a) lack of information about the
homebuying and mortgage qualification process; (b) lack
of affordable housing; (c) lack of credit or poor credit
histories.
2. Homeownership is made easier with more flexible
mortgage products and downpayment assistance
programs, but the efficacy of these packages is limited
by the housing market and the targeting of certain
households.
3. The majority of Hispanics need most (if not all) of the
available services, but clients must cobbled them
together from multiple providers.
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Cross-cutting Findings
4. Service providers operate within their preferred network
of providers; service coordination is fragmented across
metropolitan areas.
5. There is a strong demand for homeownership services
among Hispanics, but the capacity to serve these clients
is increasingly strained.
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Market-Specific Findings: Orlando
• Puerto Ricans have access to mortgage products that are
otherwise unavailable to undocumented Hispanics.
• Migration patterns are important: Financially stable
Hispanics from the North (e.g., Boston and Chicago) and
from Miami are moving to Orlando.
• Neighborhood preferences limit Hispanics’ housing
options.
• Demand for services is growing tremendously: Hispanic
growth accounts for 47 percent of metropolitan area’s
overall growth.
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Market-Specific Findings: San Antonio
• Hispanics comprise a large share of population, which
prompts more service providers to offer targeted services
to Hispanics.
• Information barriers differ from one generation to the next:
first generation households distrust or avoid financial
systems (i.e., no credit); second generation households
are overloaded in debt (i.e., bad credit).
• Undocumented households are the “hardest to serve,”
and few programs/financial packages exist to serve this
clientele.
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Market-Specific Findings: Washington DC
• Hispanic homeownership gaps do not always narrow as
household income increases; rates increase as income
increases, but gap fluctuate between 19 and 28
percentage points.
• Impact of downpayment assistance programs is offset by
escalating housing prices.
• Service coordination is particularly fragmented across
metropolitan area, which is associated with the multiple
governmental layers across Maryland, Virginia, and
Washington DC.
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Conclusion
• Public and private sector interventions should be tailored
to account for the metropolitan-level variations.
• Unclear whether the scale of these efforts will continue to
meet the demand for these services.
• The lack of any real attention to households in the 80 to
120 percent of AMI group overlooks a large segment of
Hispanics that might benefit from assistance to become
homeowners.
• Service providers in each of these communities clearly are
working very hard to open homeownership opportunities
to Hispanics.
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Review of Selected
Underwriting Guidelines to
Identify Potential Barriers to
Hispanic Homeownership
Kimberly Burnett
Alvaro Cortes
Chris Herbert
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Identified Underwriting Barriers to Hispanic
Homeownership
• Reviews of underwriting barriers by Listokin and Wyly
(2000) and Schoenhotlz and Stanton (2001)
• Establishing credit history
• Documenting income and employment history
• Verifying assets
• Meeting citizenship or residency status requirements
• Affordability
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Methodology
• Reviewed mortgage underwriting guidelines used by
– Fannie Mae and Freddie Mac
– FHA
– GMAC for subprime products
• Conducted interviews
• Review completed December 2004
• Goal: To understand the extent to which available
products overcome underwriting barriers and identify
where there is still progress to be made
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Establishing Credit History
• Barrier: Many immigrants lack credit reports with one of the
major credit repositories
• The GSEs and FHA’s standard products allow use of nontraditional credit reports/credit history
• GMAC requires credit scores for subprime products
• Traditional credit history is required for some products that are
flexible in other respects
• For borrowers with established but poor credit history
– FHA’s standard product allows the most flexibility among prime
products
– The GSEs have targeted products that offer flexibility
– GMAC approves borrowers with low credit scores
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Documenting Income and Employment History
• Barrier: Immigrants are more likely to be paid in cash, may
change jobs more frequently, have gaps in employment, and
have extended family members who contribute to household
income
• Employment history
– Standard products require two years of employment history.
Income stability, not the length of tenure at a particular job is the
focus.
– Written documentation is required
• Income documentation
– GSEs and GMAC have products that allow low/no income
documentation, but also require high credit scores
• Income from boarders is counted in FHA’s standard product
and some of the GSEs’ targeted products.
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Verifying Assets
• Barrier: Borrowers who do not use banks for their savings
can not provide bank statements to document that they
accumulated funds used for downpayments over time.
• Acceptable sources of funds to close the mortgage in
FHA’s standard product and targeted products offered by
Fannie Mae and Freddie Mac are:
– Cash accumulated through savings clubs
– Cash saved at home
– Must be sufficiently documented.
• Some products also allow related people living together to
pool funds for closing costs and downpayments.
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Meeting Citizenship or Residency Status
Requirements
• Barrier: Mortgage underwriting may preclude loans to borrowers who
are not U.S. citizens.
• U.S. citizenship is not required for mortgage approval for standard
products by Fannie Mae, Freddie Mac, or FHA
– GMAC imposes some additional requirements for non-permanent
resident aliens.
• But legal residence in the U.S. is required for mortgage approval.
• Nationwide, a handful of pilot programs have tested extending
mortgage credit to borrowers who do not have valid Social Security
numbers, but their viability is uncertain.
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Affordability
• Barrier: Hispanics are disproportionately in low-income
and low-wealth households.
• Products targeted to low- and moderate-income
households help to address this barrier:
– Low-downpayment products:
» Some require relatively high credit scores
» Come at the expense of mortgage insurance payments
» Subprime low-downpayment products typically carry higher interest
rates
– Higher total debt-to-income ratio allowed
– Higher housing expense-to-income ratio allowed
– Low or no financial reserves required for some products
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Remaining Barriers
• Legal residency
• Lack of acceptability of cash income
• Availability of Spanish-language homebuyer education
and counseling
• Special products that address key barriers may not be
widely available
• Flexibilities from subprime lenders come at the cost of
higher interest rates
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Language, Agglomeration, and
Hispanic Homeownership
Don Haurin
and
Stuart Rosenthal
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Motivation
• As of the fourth quarter of 2005
– 76 percent of white non-Hispanic families owned homes
– 50 percent of Hispanic families owned homes
• Why?
– Differences in socio-economics between white non-Hispanic and
Hispanic families
» We control for these factors, but this is not the focus of the present
study
– Low homeownership rates in Hispanic communities create selfreinforcing effects that further restrict homeownership
» This is the primary focus of this study
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Motivation
• Proximity to other homeowners facilitates access to
information about how to become a homeowner
– Neighbors may learn from each other
– Local lenders are more likely to provide services demanded by
homeowners when there are sufficient numbers of homeowners
nearby
• Proximity to other homeowners may affect preferences,
encouraging other families to become homeowners
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Motivation
• Low homeownership rates in Hispanic communities create
self-reinforcing effects that further restrict homeownership
– These effects are especially likely if nearby homeowners belong
to a given family’s social network
– These effects are also likely to be especially sensitive to whether
nearby homeowners speak English
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Empirical Strategy
• We investigate these issues using household-level data
from the 2000 Decennial Census
• We observe the MSA and PUMA in which a family resides
in 2000
• We also observe the MSA and “PUMA” in which the family
previously resided in 1995
• The data also provide information on the household’s
attributes and homeownership status in 2000
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Empirical Strategy
• PRIMARY EMPIRICAL GOALS
• Evaluate the degree to which the presence of
homeowners in the family’s 1995 place of residence affect
the family’s propensity to own a home in the year 2000
• We pay special attention to the effect of nearby Hispanic
homeowners of different English speaking ability on the
propensity of Hispanic families to own a home
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Empirical Strategy
• We control for the presence of four types of homeowners
in the 1995 place of residence
– Homeowners of the family’s own ethnicity/race who are
» Weak English-speaking
» Not weak English-speaking
– Homeowners not of the family’s own ethnicity/race who are
» Weak English-speaking
» Not weak English-speaking
• We create these measures for Hispanic families and also
families of other race/ethnicity
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Empirical Strategy
• We also control for many year-2000 family-specific
attributes
– Total family annual income, Investment income, Welfare income,
and their squares
–
–
–
–
–
–
–
–
Age of the Head and its square
Ethnicity and race of the Head
Whether the Head is married
Whether children under 18 are present
Education of the Head
Number of years the head has been in the U.S.
Head’s English-speaking ability
MSA of residence in 2000 through MSA fixed effects
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Empirical Strategy
• 1995 Presence of Homeowners
– Measured at the “PUMA” level
– Full 5% sample of the IPUMS is used
– Sampling weights are used to ensure representative measures
• Estimating Sample
– Restricted to just those families that moved out of state between
1995 and 2000.
– This helps to ensure that the estimated influence of proximity to
existing homeowners is indicative of causal effects
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Key Findings
• “Standard” control variables perform as expected
– For example, earned and investment income elevates propensity
for homeownership
• Years in the U.S. increases the propensity to own a home
• English-speaking ability increases the propensity to own a
home
• These patterns largely hold for all households, Hispanic
and non-Hispanic (See Tables 3 and 4)
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Key Findings
Table 5
Probability of Homeownership – Proximity to Homeowners in 1995
(t-ratios clustered by the 1995 U.S. place of residence)a,b
Hispanic Households
% 1995 household heads who
are homeowners and who are …
Full Sample
Speak Only
English
Do Not Speak
Only English
Own ethnicity/race and WEAK
English Ability
2.4694
2.7853
2.4493
(4.66)
(2.13)
(4.14)
Own ethnicity/race and STRONG
English Ability
0.0613
0.1065
0.0468
(1.73)
(1.54)
(1.30)
NOT own ethnicity/race and WEAK
English Ability
-0.0570
-0.0091
-0.0715
(-0.46)
(-0.03)
(-0.50)
NOT own ethnicity/race and
STRONG English Ability
0.0110
0.0528
0.0248
(0.13)
(0.35)
(0.26)
Observations
10,278
Hispanic Homeownership Seminar - June 1, 2006
Source: Bureau of Labor Statistics
2,761
7,517
56
Key Findings
Table 5
Probability of Homeownership – Proximity to Homeowners in 1995
(t-ratios clustered by the 1995 U.S. place of residence)a,b
Hispanic Households
% 1995 household heads who
are homeowners and who are …
Full Sample
Speak Only
English
Do Not Speak
Only English
Own ethnicity/race and WEAK
English Ability
2.4694
2.7853
2.4493
(4.66)
(2.13)
(4.14)
Own ethnicity/race and STRONG
English Ability
0.0613
0.1065
0.0468
(1.73)
(1.54)
(1.30)
NOT own ethnicity/race and WEAK
English Ability
-0.0570
-0.0091
-0.0715
(-0.46)
(-0.03)
(-0.50)
NOT own ethnicity/race and
STRONG English Ability
0.0110
0.0528
0.0248
(0.13)
(0.35)
(0.26)
Observations
10,278
Hispanic Homeownership Seminar - June 1, 2006
Source: Bureau of Labor Statistics
2,761
7,517
57
Key Findings
• Adding 1 percentage point more weak English-speaking
Hispanic homeowners to the population in the 1995 place
of residence …
– Strongly increases the propensity of Hispanic families to own a
home regardless of the own ability to speak English
– 2.78 percentage point effect on Hispanic families that only speak
English
– 2.45 percentage point effect on other Hispanic families
• Marginal effects of proximity to strong English-speaking
homeowners in 1995 are much smaller
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Key Findings
• What generates this result?
• The importance of proximity to weak as opposed to strong
English-speaking homeowners is
– Not likely to be endogenous
– Families eager to own are unlikely to seek opportunities to live
near weak English-speaking homeowners
• Instead …
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Key Findings
• Two mechanisms seem especially likely to account for our
results
– The presence of weak English-speaking Hispanic homeowners
could signal the presence of local programs/services that
facilitate homeownership among Hispanic families
» Consistent with Waldfogel (2003) and George and Waldfogel (2003)
– Weak English-speaking homeowners may also provide role
models and thereby encourage homeownership among other
Hispanic families
» Consistent with Evans, Oates, and Schwab (1992)
• We cannot distinguish between these two mechanisms
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Key Findings
• Important to also note that
– There are many more Hispanic homeowners with strong as
opposed to weak English-speaking ability
– This causes the total spillover effects from 1995 proximity to
these groups to be about the same
• On average, the total impact of proximity to Hispanic
homeowners in 1995 is to raise the year-2000 Hispanic
propensity to own …
– By 2.22 percentage points for the 1995 presence of weak
English-speakers
– By 2.52 percentage points for the 1995 presence of strong
English-speakers
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Policy Implications
• At the margin …
• Promoting homeownership among Hispanic families will
likely have two important effects
– Elevate homeownership among program participants
– Generate spillover effects throughout the Hispanic community
that further encourage homeownership
– This latter effect has been the focus of this study
• These spillovers effects are likely to be especially strong
when programs target weak rather than strong Englishspeaking families
Hispanic Homeownership Seminar - June 1, 2006
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