Financial Literacy Taps Multicultural Market Potential

MBA (7/10/2008 ) Palaparty, Vijay
Multicultural home buyers present significant opportunities in the current down market. However, they require more financial literacy assistance to help them both achieve and maintain homeownership.
“From a business perspective, given the slowdown in the housing market, the industry needs to increase productivity in terms of available transactions,” said Landon Taylor, president of the strategic markets division at First American Title Insurance Co., Santa Ana, Calif. “The purchasing power of the multicultural segment is tremendous, and if we solve barriers that prevent them from buying, it will be to our benefit. Using methods to teach financial literacy will not only empower industry professionals to succeed; it will help to ensure that homeownership becomes a reality for underserved communities.”

Taylor said his company has changed the way it approaches the multicultural segment, moving from the term “emerging” to “strategic.”

“It has already emerged,” Taylor said. “But one of the most tragic things is that as a result of the subprime market, the segment that we were focused on servicing is now at risk. The challenge is to shift gears to protect these borrowers and ensure responsible lending. There is a need for new programs as well as financial literacy.”

The Mortgage Bankers Association’s 2008 Advocacy Agenda touts efforts to assist potential borrowers as well as current borrowers. Through its Home Loan Learning Center (www.homeloanlearningcenter.com), MBA offers tools to help future borrowers learn about the mortgage lending process. MBA has enhanced its bilingual Foreclosure Prevention Resource Center on HLLC to also help borrowers having trouble paying their mortgages. The resource will help these borrowers understand possible alternatives to foreclosure. The association also plays a lead role in the HOPE NOW Alliance and is a partner with NeighborWorks America's efforts to preserve homeownership.

According to data from Latin Force Group LLC, Miami, one-third of the U.S. population is of either Hispanic, Asian or African American origin. The statistic includes a Hispanic population that accounts for 15.5 percent of the total U.S. population, and Asian and Pacific Islanders, who account for 4.6 percent. Additionally, the U.S. Census Bureau reported that the increase in population in the Asian and Hispanic community between 2000 and 2008 represents a 35 percent and 34 percent growth rate, respectively.

The Latin Force Group also reported that by 2013, the three major ethnic groups would represent a combined population in the U.S. of more than 109 million, with Hispanics representing nearly half that number—suggestive of significant market opportunity.

“Lack of knowledge has prevented new immigrants and minorities from purchasing a home but has also made them victims of predatory lending due to lack of knowledge and process,” Taylor said. He said multicultural homebuyers have historically been hardest hit by predatory real estate practices.

First American’s Homeownership Foundation provides capital and content to nonprofit counseling agencies to help educate homebuyers as well as aid borrowers. The company has provided capital to partners such as OperationHOPE, Los Angeles, which offers telephone counseling and financial literacy. Taylor said more than 10,000 potential home buyers have participated in its programs. Additionally, OperationHOPE received 60,000 phone calls from troubled borrowers, out of which 41 percent receive regular homeownership counseling.

Taylor said current Hispanic and African American homebuyer segments are more likely to be first generation home buyers—their parents were not homeowners. “From a practical perspective, they don’t have that knowledge because their parents were not homeowners,” he said.

He said the Hispanic community, particularly those coming from Mexico, tends to lack trust with traditional banking institutions, often keeping their wealth at home. “You have a fundamental cultural difference where banking is not practiced traditionally,” he said. “In Mexico, there is also no structured mortgage lending practice—everything is cash-based where people save up for years to buy a home.”

Taylor said translating the lending process is essential, letting potential homeowners know they can get a mortgage loan by putting 10 percent to 20 percent down rather than waiting to save up all their cash. He said the African American community often falls victim to predatory lending because of a fear of working with traditional institutions, thus resorting to working with a potentially predatory broker.

“The fear causes them to say yes to a subprime or even possible predatory loan,” Taylor said. “Oftentimes they may not even know it. Within the multicultural community, trusted advisors are incredibly important. Their advisors are faith-based organizations and nonprofit housing organization such as OperationHOPE—institutions that are not traditional banking institutions. Therefore, real estate financial literacy needs to be made available through those advisors.”

Taylor added that the multicultural segment is willing to not only accept the education but is also eager. “They are hungry for information,” he said. “It’s not until very recently that financial institutions have been putting real information out there.”