New Down Payment Rules May Be Discriminatory

Ready to cough up a higher down payment to buy a home? Mortgage financing availability was cited as the single-greatest factor prohibiting people of color from fulfilling dreams of homeownership, according to a March survey of multicultural real estate professionals -- some of whom say policy makers need to do more for minority home buyers in order to avoid a repeat of the subprime lending crisis.

"The government's housing recovery efforts have not gone far enough to improve the situation facing minority homeowners," said Kenneth Li, chairman of the Asian Real Estate Association of America (AREAA), who, under the "Multicultural Real Estate Coalition," joined with leaders of the nation's two other largest organizations representing multicultural real estate professionals to issue a March 15-released public letter of their concerns.

One of its concerns: A very high down payment requirement or high FICO cut-off would limit residential mortgage eligibility to a narrow segment of the market, essentially creating a perhaps unintended impact on minority and traditionally under-served consumers.

In fact, if the right balance is not found with underwriting guidelines, the coalition states in an open letter, a similar scenario that created the proliferation of subprime lending might once again be created, with borrowers of color facing high rates and fees, inevitably jeopardizing housing recovery.

AREAA and the National Association of Hispanic Real Estate Professionals (NAHREP), and the National Association of Real Estate Brokers (NAREB), which represent more than 70,000 real
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estate practitioners of color and the growing minority community of America, surveyed its members who attended an early March Multicultural Real Estate & Policy Conference in Washington D.C.

When data were collected on their views of the home buying market and economic recovery efforts, nearly 80 percent of the attendees responded they "believe that the current policy efforts have done little to improve the situation facing minority home buyers."

"Overwhelmingly, the members of our three organizations agree that the lack of mortgage financing is the single-biggest challenge facing minorities who want to buy homes," said Li.

Attendees also felt strongly that an active secondary market role is needed by the government to ensure that all homebuyers have access to the American dream of homeownership.

"These are real estate professionals who are out in the community, trying to help hard-working Americans achieve their dreams of buying homes, and they are confirming what we have long suspected - that their clients cannot get loans," Carmen Mercado, chair of NAHREP said.

In a nearly 60 page study of bank loans in the US from 2004 to 2009 released in February, one researcher, Maurice Jourdain-Earl, found that African Americans and Latinos have more difficulty financing a home, whether they are first time home buyers or homeowners looking to refinance an existing mortgage. Access to credit is further restricted if the borrowers are looking to buy or refinance in census tracts with high foreclosure activity.

For those who are able to break through and obtain a mortgage, it was found that whites were about twice as often as the largest two minority group to be approved for prime mortgages with the lowest interest rates. African-Americans and Hispanics, however, were two to four times more likely to receive subprime loans with higher rates. However, wites did receive the majority of high-cost loans, raking in more than 60 percent of them.

Since the housing crisis began, mortgages made to Latinos decreased the most, by 63 percent from $214 million in 2004 down to $78 million in 2009; while lending to African Americans fell 59 percent from $122 million to $49 million. Although lending to Asians remained hovering around $128 million, non-Hispanic whites, on the other hand, were affected much less than the Latinos and blacks. New mortgages to white borrowers fell only 17 percent to $1.1 billion from $1.3 billion.

Although Black Enterprise notes that these drops could mean positive news for borrowers of color since they are getting fewer higher costs loans, but what it also means is minorities are getting fewer loans overall. "At this point, African-Americans and Latinos are not even able to get high-cost subprime loans," Jourdain-Earl told the glossy business magazine that targets African Americans.

A February study by National People's Action, a nationwide network of community organizations headquartered in Chicago, found similar results in its region. Black homeowners in the Chicago, Peoria, St. Louis, Detroit and Kansas City, Mo., metro areas suffered an 86 percent decline in mortgage refinancings between 2006 and 2009, according to NPA's study. Latinos saw a 76 percent decline during the same period. White homeowners, however, experienced an 89 percent increase in refinanced loans during that period.

To help stabilize the home-buying market for minorities, the organizations for the multicultural real estate professionals issued a joint report titled, "The Five Point Plan: Refocusing the Future of Minority Homeownership."

The Five-Point Plan calls for:
  • A balanced regulatory approach that will support and encourage sustainable homeownership for qualified and responsible consumers seeking to purchase a home;
  • Increased diversity in the financial services arena and adequate oversight of minority business utilization and senior management hires;
  • Maintaining strong government support of the secondary market system that includes the broad network of primary lenders, government-supported securitization agency, and FHA that collectively works to broaden credit availability for all communities at all times;
  • Strong consumer protection oversight to restore consumer and market confidence in homeownership; and
  • Mandatory financial education for all first-time homebuyers that prepares them for the responsibilities, risks and rights associated with homeownership.
The groups feel the guidelines are necessary, they say in the plan, because "some have used this housing crisis to point fingers and the Community Reinvestment Act, GSEs' Affordable Housing Goals, and other government efforts to drive access to credit for traditionally underserved borrowers. We reject this misguided and misinformed assertion. While there is a clear need for more affordable rental housing options in America, it must not come at the expense of reducing the focus on homeownership in America, particularly as minorities continue to lag behind in homeownership rates.

"Our Five-Point Plan is designed to bring common sense and a balanced approach to restoring the dream of homeownership to everyone," said NAREB President and CEO Vincent Wimbish. "None of us wants to have homeownership a dream deferred or denied."

Sheree R. Curry
, who has owned three homes and once had a Wells Fargo mortgage, is a three-time award-winning journalist who has covered real estate for six years. During her 20-year career, her articles have appeared regularly in the
Wall Street Journal, TV Week, and Fortune. She's been writing for AOL Real Estate since 2009 from a Minneapolis-area rental. She seeks a book publisher -- or at least a lender who'll give a reasonable mortgage rate to a self-employed mom.

Meet NAHREB's Chair Carmen Mercado

Saving the American Dream

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