| Excerpts from "Homeownership Gap Among Low-Income and Minority Borrowers Neighborhood" and data from the U.S. Department of Housing and Urban Development by Connie Hanson Associated Bank Home-Loan Officer |
| Information here presented primarily impacts the Asian Community. Statistics are national, based on surveys and studies completed from 1990 to present. Today, Americans are more likely than ever to own their own homes. The annual homeownership rate stands at an all-time high with 69% of American families sharing this experience. Homeownership not only provides families with the single largest investment of their lifetimes, but also strengthens communities, fosters civic pride and provides children with a stable living environment. At the same time, many families do not share the same opportunities and too many face barriers to homeownership. Indeed, the rate of homeownership for minority families continues to lag behind the national average. To address this problem head on, in June 2002, President Bush issued a bold challenge to the nation: to create an additional 5.5 million in new minority homeowners by 2010. Already, significant progress has been made toward achieving this goal. Clearly more needs to be done to overcome obstacles to expand homeownership opportunities for all Americans. The study from which the following information is gathered and indicated above, identifies several key barriers accounting for the homeownership gap. Importantly, it finds that these barriers are often shared across ethnic and racial lines and include differences in income, wealth, marital status and the age of the household. Programs are already in place to close the homeownership gap, down payment assistance programs, zero down payment mortgages and a commitment by the Administration to enforce the nation's fair housing laws to stamp out racial discrimination in lending practices. Much more needs to be done; an understanding of the scope of the homeownership gap will support the affected populations in seeking on-going and continued efforts to remove the homeownership gap as it exists today. All racial and ethnic groups experienced rising homeownership rates during the 1990's. Census data indicate that between 1990 and 2000, homeownership increased by 3.3 percentage points among White, 2.4 percentage points among Blacks, 3.0 percentage points among Hispanics, and 2.2 percentage points among Asians. In 2000, we find that the White-Black homeownership gap was near the highest levels of the past 60 years, as measured by decennial census data. The White-Hispanic homeownership gap has also generally increased over the last few decades, rising from 23.0 percentage points in 1970 to 27.0 points in 2000. A significant factor in this widening gap is the rapid rise in Hispanic immigration, which has served to depress overall Hispanic homeownership rates. The greatest decrease in the homeownership gap has occurred among Asians, when it dropped from 29.3 percentage points in 1940 to 16.5 points in 1980, rising slightly to 18.3 points in 2000. As with Hispanics, the increase in the gap between 1980 and 2000 is in part attributable to the growth in the Asian immigrant population. We find there are large differences in homeownership rates by household income. As of 2003, 51.2% of very low-income households (those with income below 50% of the relevant area median income or AMI -- In Madison that would be below $29,000 for a family of two) owned their own homes compared to 86.6% of high-income households (at or above 120% of AMI, $69,000 in Madison for a family of two). Differences in homeownership rates by income are an important factor in understanding homeownership differences by race and ethnicity.. Compared to Whites, both Blacks and Hispanics have much lower incomes, while Asian households have higher incomes. However, after accounting for differences in income levels, homeownership gaps remain for all racial and ethnic minorities, suggesting other factors are at work./ Other factors that contribute to the overall differences in homeownership rates include differences in households' demographic characteristics and geographic location. Key demographic characteristics are age, household type and educations level. Homeownership is higher for older households, married couples and those with higher levels of education. Asians have household characteristics that are associated with higher homeownership rates. In addition to having income levels that are higher than Whites, Asians also have a greater preponderance of married couple households and have higher education levels. The one aspect that serves to depress Asian homeownership rates relative to Whites is age, as Asians in the U.S. are much younger on average than Whites. 1999 Homeownership Rates for Families with Household Incomes above $60,000 by race: White .8916 Hispanic .7765 Black .7766 Asian .7762 1999 Homeownership Rates for Families with Household Incomes $30,000 and $60,000 by race: White .7295 Hispanic .5186 Black .5762 Asian .4708 Clearly, there is a much smaller gap in the higher income, above $60,000 than in the lower income levels, where the gap becomes substantial. Homeownership Rates for All Families White .7427 Hispanic .4584 Black .4836 Asian .5214 Barriers to Homeownership One of the most prominent and significant barriers to homeownership is low wealth or lack of savings. Another common barrier to obtaining mortgage financing is poor credit history. The credit history examines the number of accounts opened, payment histories on these and previous accounts and whether there is a history of bankruptcy or loan default in the past. In addition, the borrower's employment history is considered, with a less stable employment history viewed as a greater credit risk. Another commonly cited barrier to homeownership is a lack of information on the part of prospective homeowners, which can limit access to mortgage financing and appropriate housing units for homeownership. One reason for this shortfall in knowledge is that minority and immigrant households do not have a family history of homeownership. Another potentially important barrier to homeownership is racial discrimination. There are laws in place to protect minorities against this practice. One of the most common approaches to promoting homeownership is to provide down payment or closing cost assistance in the form of grants or low-cost loans. Madison and Dane County are very proactive in providing a wide range of programs that provide down payment and/or cost assistance. Through counseling with a local lender, a poor credit history can be overcome with diligence and time. Lack of information can be countered also with counseling. Most lenders provide First Time Home Buyer Seminars which are free of charge and are a wealth of information. Banks are required by law to adhere to the regulations provided by the Community Reinvestment Act or CRA, which protects potential buyers against discrimination. CRA require that lenders report on the lending activities; the number of minority applications accepted, the number approved, the number denied, and the reasons for denial are now reported. The Home Mortgage Disclosure Act also requires the availability of information on the characteristics of mortgage applications. Both have been powerful tools for monitoring lender activities./ In addition to developing policies to deter discrimination and the development of programs that provide down payment assistance and counseling, there must be recognition of the factors that fall outside the range of homeownership policy, such as enhanced job opportunities, job security and household stability (i.e. marital status). Creating an environment conducive to financial and family security for minorities is a challenging task, but one that policy makers must grapple with if they are to substantially reduce current racial gaps in homeownership. ***************************** Example of a home-loan program Assumptions: City of Madison 4-unit OCC; couple with 3 children; $63,000 income; less than $100/mo in additional debt Purchase price: $280,000 City of Madison Homebuyer Assistance Program will provide a loan of $40,000 plus $10,000 per unit for a total of $70,000. However, 10% must be set aside for improvements, leaving $42,000 for down payment. Ideally, the buyer would have their own 5% which would allow for the standard 30-yr fixed interest rate prevalent in the market and no additional fees. Minimum from buyer is 3%. Conventional 30-yr, 6.25%, loan amount $224,000. Rents would be $850/mo. PI $1,379.20 Taxes 452.00 Ins 70.00 TOTAL $1,901.20 Installment loans are provided to households earning more than 80% of the Dane County Median Income but less than 125% of DCMI, $90,500 as of January 2006 (other stipulations may apply). Deferred Payment loans shall be provided to households earning 80% of DCMI or less (other stipulations also may apply). Contact Connie Hanson for any question at (608) 278-2449 or e-mail her at connie.hanson@associatedbank.com. |
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