Minority markets are growing, but brokers must choose the proper products to tap them
Patricia McClung, vice president of housing and community investments, Freddie Mac
As published in Scotsman Guide's Residential Edition, September 2005.
The two questions you should ask yourself every morning and night are: “What’s next?” and “Am I prepared?” Are you doing everything you can to expand your mortgage business?
Here’s what’s next on the economic front: Mortgage rates are on track to average 5.8 percent this year but will increase slightly through 2006. That will slow home sales from an estimated 7.2 million this year to 6.73 million next year. Freddie Mac also expects total originations to slip about 10 percent, from $2.62 trillion this year to $2.35 trillion by the end of 2006. At the same time, the purchase mortgage business will jump from a 58-percent share to a 70-percent share of all originations.
Competition also will heat up as originators scramble to replace some of that lost refinancing volume with originations for immigrant and racial-minority households — who will almost single-handedly drive our industry’s growth. In fact, according to the U.S. Census Bureau, minorities will drive two-thirds of the nation’s household growth in the next 20 years and account for the lion’s share of new homeowners and repeat borrowers.
But this growth won’t automatically turn into new business for mortgage brokers. Several identifiable and addressable obstacles hold down minority homeownership.
The challenge for brokers: Build market share by penetrating the Hispanic-American, black and Asian-American communities for the growing number of borrowers who could face challenges such as limited credit, savings, homebuying experience and language skills.
How should you prepare? Here are a few thoughts based on Freddie Mac's experience and expectations.
Preparing the market
According to Freddie Mac’s research, the reason behind almost half of the 25-percent gap between white- and minority-homeownership rates has nothing to do with income, age or length of residency. Instead, many of these minority households apparently are held back by persistent myths about homebuying, as well as cultural and language barriers. For example, about half of the Hispanic-American and black households we surveyed believe borrowers cannot qualify for a mortgage without a 20-percent down payment, perfect credit and three years of employment at the same job.
To help break down those walls of misunderstanding and mistrust, we’re reaching out with the National Association of Mortgage Brokers (NAMB) and other organizations to prepare more Hispanic-American households for homeownership through Freddie Mac’s financial-literacy-outreach program, CreditSmart Español.
An eight- to 10-hour workshop, CreditSmart Español teaches consumers with and without bank accounts about credit, homeownership, the mortgage process and the importance of establishing relationships with a banking institution. Tens of thousands of Spanish-speaking households have participated in CreditSmart Español and its English-language equivalent, CreditSmart, in markets nationwide. Still, the Federal Reserve reports that 38 percent of Hispanic Americans and 42 percent of foreign-born Hispanics don’t use financial institutions.
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