MReport August 2020

TheMReport — News and strategies for the evolving mortgage marketplace.

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30 | M R EP O RT FEATURE economy workers is notoriously challenging. To capture more Hispanic borrowers, it's important that lenders develop underwriting models that support non- traditional workers. Hispanics tend to have higher debt-to-income ratios and live in more expensive cities relative to their income. The median debt-to-income (DTI) ratio for Latino homebuyers in 2018 was 42%, while more than a third of Latinos had DTIs above 45%. This can be partly attributed to the concentration of Latinos living in high cost markets, where housing is more expensive. Hispanics tend to have lower FICO scores—but they are increasing. In 2018, the median Latino FICO score was 684, up from 678 in 2016. While this is lower than the median credit score for the general population, which was 722 in 2018, remember, Hispanics are younger than the general U.S. population. When looking at the credit scores of young millennials overall (678) and older millennials overall (688), the median credit score of Hispanics is nearly identical. Capturing Latino Marketshare T he 2019 State of Hispanic Homeownership Report set out to analyze who Hispanic homebuyers are, where they are, and where they are going. Given much of the future of housing demand will squarely rest within the Hispanic community, our entire industry would benefit from knowledge that will allow even more Hispanics to participate in homeownership. As an industry, we also have to be better at serving the Latino market in a way that works for them, and that means not solely relying on marketing materials translated into Spanish. While many Hispanic homebuyers today like to conduct business in Spanish, 94.3% of Latinos under the age of 18 are U.S. born. That means the likelihood that they will not only be English proficient but English dominant is all but guaranteed. In partnership with Freddie Mac, the NAHREP identified three strategies to reach the Hispanic consumer: a millennial approach, a geographic approach, and a human resources approach. Here's a closer look at what these three strategies look like: Convert mortgage-ready Hispanic millennials to homeowners. This strategy involves recruiting new Hispanic homeowners by focusing on the low hanging fruit: the millions of Hispanic millennials across the country who are already "mortgage-ready." The report defines "mortgage-ready" as nonmortgage owners who were 37 and younger in 2018 and have credit characteristics that could qualify them for a mortgage. This generally means a FICO score over 620, a DTI ratio at or below 25%, no foreclosures or bankruptcies in the prior 84 months, and no severe delinquencies in the prior 12 months. In 2018, there were 4.9 million of these mortgage-ready Hispanic millennials across the U.S. The report also features the top 20 markets with the most mortgage-ready young people, ranked by the availability of housing in each market. Notably, Texas topped the list with five cities among the top 20 markets. This is likely due to Texas' more affordable cost of living, but more expensive cities such as Miami, Philadelphia, Los Angeles, and Chicago also made the cut. Use Latinos' domestic migration patterns to drive strategic planning. The second strategy is to identify where the future buyers are today, and possibly where they are headed. Between 2015 and 2018, Latinos have migrated from some ultra-high-cost states like California and New York, which lost 205,000 and 191,000 Latinos respectively. Texas, as noted above, has benefitted from an influx of Latinos with the highest number of domestic migrants at 102,000. What is worth noting, however, is that nontraditional Hispanic markets are booming as well. States like North Carolina (plus-34,000), Washington (plus- 42,000), and Georgia (plus-34,000) saw substantial growth to their Latino populations. Recruit more culturally competent Latino professionals, including management positions. Finally, the most important strategy the mortgage industry can adopt is to focus on people resources. Taking on a mortgage is often the largest financial transaction a family will engage in during their lifetime. The process can be overwhelming, even for the most educated. There is also an experience barrier for first-time homebuyers that can be daunting. Even in the best cases, getting a mortgage is confusing. In the worst case, it deters a family from trying to qualify at all. When you build in language and cultural barriers, buying a home gets even more challenging. In order to close this gap, the mortgage industry needs to recruit more Latinos as leaders and employees. Hispanics value personal relationships and make purchasing decisions based on trust. Mortgage companies looking to expand their Hispanic market share should commit to building culturally competent sales and operations teams that can develop trusted relationships with real estate agents and consumers. Personal relationships that build referrals are often forged in networking associations, like the NAHREP. In a survey of top-producing real estate agents in 2019, the NAHREP found that Latino real estate agents predominantly serve Latino clientele. Over half of those surveyed reported that at least 60% of their clients are Latino, and more than a third reported at least 81% of their clients are Latino. That's pretty remarkable, but not all that surprising. Having a relationship with these agents will open the door to new market share. A New Economic Reality C OVID-19 has created a new normal that will no doubt stunt the housing industry, at least in the short term. There is no magic bullet that is going to bring back the jobs lost over the last several months, and we have yet to see what implications this crisis will have on consumer credit, particularly for vulnerable communities. Like almost every other industry, 2020 is going to be a tough year for many. Thankfully, unlike past recessions, the foundation of our housing market is stronger today that it's ever been. It will bounce back strong, and most likely sooner rather than later. When the time comes, the fundamental trends that have driven Hispanics to lead the way in terms of homeownership growth will help lead the nation to recovery. So too will the lenders that focus on serving them well. . SARA RODRIGUEZ is the CEO/Owner of Titan Title and a partner at Mendez Rodriguez, PLC. Her practice specializes on all matters related to residential and commercial real estate transactions. In 2016, she served as President of NAHREP Northern Virginia and has served on the chapter's board of directors since 2013 in various leadership roles. Additionally, she serves as a national chapter coach. Since 2005, Rodriguez has taught DPOR approved courses through various state-licensed schools in both English and Spanish. She also teaches Continuing Legal Education (CLE) for the National Business Institute in Virginia. \Rodriguez has appeared as a speaker at multiple events and conventions speaking on a multitude of real estate issues including contract, short sales and foreclosures. She was admitted to the Virginia Bar in 2003 and has practiced immigration law, family law and real estate law.

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