Mortgage lenders are rolling out the red carpet for minorities. Once the target of discriminatory lending tactics, such as redlining-excluding whole neighborhoods from access to mortgages-minorities have become prime marketing targets.
The reason is twofold: The Clinton administration has stepped up enforcement of fair lending laws and the fast-growing minority population is revealing itself as a vast spending power.
“We’ve seen an aggressive pursuing of minorities. A lot of my clients are Hispanics, and major banks are really pushing (loan applications) through because they’ve been slapped so hard in the past,” said real estate agent Mark K. Hicks, president of the African American Association of Real Estate Professionals.
Minorities are still turned down more often by lenders, but in the past few years, mortgage industry efforts have begun to make it easier for them to attain an elusive goal.
“I think minorities are more aware than ever before that they will be able to buy that home and accomplish the American dream. We are also trying to make them aware of that,” said Tina Hubbard, secretary and community liaison for the African-American association and an agent at Fox & Carskadon Realtors in Saratoga, Calif.
Some of the lenders’ efforts include:
– Providing no- and low-money-down, low-interest mortgages and special programs for first-time home buyers who are hard pressed to come up with large down payments.
– Rewriting underwriting rules to remove potentially discriminatory guidelines. The revisions direct lenders to consider cultural differences when they evaluate applications for low-down-payment loans from minority buyers.
For instance, the lack of a credit history should not automatically disqualify a borrower because members of some cultural groups were raised in a cash society and don’t use conventional credit.
– Providing borrower education and participating in community outreach programs. Weyerhaeuser Mortgage Co., along with Glendale Federal, Bank of America and other lenders and brokers joined Santa Clara County area ethnic groups at a recent “Minorities ‘n’ Real Estate” conference in San Jose, the city’s first such joint conference between lenders and minority groups.
However, the low turnout-only a few hundred people-indicates more needs to be done.
“The lenders were discouraged. I gave out tens of thousands of fliers, but people look at them from a historical standpoint and don’t believe lenders want to help. Lenders and real estate people should be leading the charge, not me. I’m no Deion Sanders,” said conference coordinator Rick Warren, president of the Sacramento-based Minorities in Real Estate.
– Enrolling loan officers in ethnic sensitivity sessions and providing them with financial incentives to make more loans in neighborhoods that have been avoided historically.
“We are not trying to downplay the importance of this,” said Phil Hartung, Bay Area manager of the Woodland Hills-based Weyerhaeuser Mortgage.
Since 1988, when the Atlanta Constitution’s Pulitzer Prize-winning series “The Color of Money” publicized widespread discriminatory lending practices, the mortgage industry’s treatment of minorities has been under ever-increasing scrutiny.
On Jan. 16, the national holiday commemorating Martin Luther King’s birthday, President Clinton issued an executive order to establish a Cabinet- level President’s Fair Housing Advisory Council.
Months later, the resulting Interagency Task Force on Fair Lending announced stricter interpretations of the Fair Housing Act and Equal Credit Opportunity Act. The task force said discrimination could occur if a lender applies a policy equally to all applicants, and the policy has an obvious and disproportionately adverse effect on a particular race, gender or age group.
That could apply to a host of “turn-down” factors that underwriters commonly use, such as non-traditional sources of down-payment cash, property locations in rundown sections of cities and lack of a credit history.
“We’ve made over three dozen (underwriting) changes over the last few years specifically designed to remove some of obstacles and barriers that can impact minorities. We will continue to find more way to be more responsive to the special housing needs of different groups,” said Kevin Hawkins, spokesman for the Federal National Mortgage Association, known as Fannie Mae, in Washington.
Though mortgage originations and homeownership rates for minorities remain far smaller than for whites, a Federal Home Loan Mortgage Corp., or Freddie Mac, review shows that mortgage lenders’ extra efforts are beginning to pay off
The number of mortgage applications for blacks increased 38 percent from 1992 to 1993; for Asians, 11 percent; and Hispanics, 31 percent. Actual home purchases have risen by similar percentages, reflecting fewer rejections.
The effort for minorities is also having a trickle-down effect for white buyers who have a tough time affording a home.
“A lot of yuppies overburdened with credit cards are benefiting from these programs. First-time home buyers can put a minimum down, and we can stretch that with special second mortgages and gifts,” said Susan Fogel, a mortgage broker and owner of Susan Fogel & Associates in San Jose.
Local and state governments also provide mortgage assistance, often in the form of second mortgages or special loan programs.
Minority consumers and others shopping for mortgages would do well to consider these programs. Watch for and ask about additional programs that pop up from private lenders or city or county housing departments.
– Fannie Neighbor is a mortgage for buyers who purchase homes in areas where residents earn 80 percent or less of the local median income. If you earn as much as 150 percent of the median income, you can still qualify for Fannie Neighbor if you buy a home in predominantly minority neighborhoods.
The maximum $203,150 Fannie Neighbor loan allows for a 5 percent down payment, a more liberal debt-to-income ratio and demonstration of a credit history through non-conventional means.
– Under the Community Reinvestment Act, virtually every private lender offers similar loans under Fannie Mae’s Community Home Buyers program, primarily for urban markets. Called the 3-2 Option, these mortgages allow you to buy a house with as little as 3 percent down from your own funds. An additional 2 percent can come from a family member’s gift, a grant or unsecured loan from a local not-for-profit or governmental agency.
Your annual earnings cannot exceed 120 percent of the median household income for your market area. Buyers must attend a home-buying and ownership seminar.
– With the Mortgage Credit Certificate program, typically 20 percent of the annual mortgage interest you pay to the lender will be given back to you as a federal tax credit. The tax credit is subtracted, dollar-for-dollar, from your federal income tax owed. In many cases, lenders will qualify you for a loan based on the monthly mortgage payment minus the tax credit, enabling you to qualify for a bigger loan.
The program is for first-time buyers who live in the purchased home. There are income limits. MCC can be used to obtain a new first mortgage or to refinance one.
Before you apply to your county for a certificate, you must first select a home, make an offer and then work through the MCC application paperwork with a participating lender.
Contact your county’s housing department for a list of participating lenders and other details.
– The U.S. Department of Housing and Urban Development occasionally offers low down payments on as-is foreclosure properties and other loan assistance. HUD also offers, through private lenders, 3 and 4 percent Federal Housing Authority loans up to a maximum $151,725.
– Veterans Affairs Administration’s Home Loan Guarantee Program often requires no down payment on low-interest loans up to $184,000 to buy, build or improve a home and to refinance an existing mortgage.
