Right now, there are several legislative proposals in Washington aimed at revamping the mortgage market. Of note, Senators Tim Johnson (D-S.D.) and Mike Crapo (R-ID) recently presented a housing finance reform bill that aims to eliminate the GSEs, Fannie Mae, and Freddie Mac, and which seeks to create a new mortgage market that will be primarily backed by private capital.
The bill has received criticism from different groups claiming that the proposed draft of the Johnson-Crapo bill does not include affordable mortgage credit opportunities for everyone, especially minorities who have been historically disadvantaged from the mortgage market.
“[W]hile the new entity that’s going to be created to regulate the housing industry has as part of its purpose to ensure all markets have access to affordable mortgage credit, that purpose doesn’t expand all the way through to the entities who are ultimately going to benefit from having a government guarantee,” said Senior Policy Advisor for Economic Policy at NCLR, Enrique Lopezlira. “Our biggest concern is that it’s left to just the market. Once again, our communities will be out of affordable access to credit.”
Data shows that since the housing market crash Latinos have been affected the most out of all groups. This has largely to do with the fact that Latinos live in areas where the housing prices increased the most during the housing crisis, and have fallen the most since then. About 28 percent of Latino homeowners say they owe more on their home than what they could sell it for, which is double the rate of other homeowners, stated a Pew survey.
Since minorities will account for 70 percent of net new households in the next 10 to 20 years, access to affordable mortgage credit is crucial for those populations.
“Many Latinos who qualified for traditional mortgages were actually steered into subprime loans,” said Lopezlira. “They were victims of predatory lending and ended up buying unsustainable mortgages.”
One study conducted by New York University found that when it comes to wealthier minorities, they are more likely to receive subprime loans than wealthier whites. In addition, Black, Latino and Asian minorities are 1 to nearly 3 times more likely to be denied a loan than their white counterparts.
Moreover, though housing discrimination has declined substantially since the 1970s, the U.S. Department of Housing Urban Development reports there are more “subtle housing discrimination” practices today toward minority renters and homebuyers. Most groups, whether they are a minority or not, get equal treatment when it comes to getting an appointment to see a housing unit, the HUD report notes, but whites are more likely to be shown more housing options than Black, Latino or Asian groups.
Currently, the Johnson-Crapo bill has a 3.5 percent down payment requirement for first time buyers. “It might not seem like much, but if you’re a Latino in a high cost area like California, having to save 3.5 percent on the type of house prices they’re looking at is a big challenge,” said Lopezlira. “…We see value in a market-based approach, but we can’t just let the market take care of our communities because they haven’t in the past.”