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Latino homebuyers are most likely to use risky financing, survey finds


Last year, about half of Latino households in the U.S. were homeowners. And according to the Urban Institute, this group could make up 70% of new homeowners over the next two decades. But new findings suggest Latinos are more likely than any other ethnic group to use risky home financing. More than a third of those households surveyed by the Pew Research Center said they tapped something other than a traditional mortgage to purchase a house. And that alternative financing can come with steep costs and also high risks. Joining us to discuss what this could mean for U.S. homeownership long term is Lot Diaz. He's vice president of Housing and Financial Empowerment with the Latino advocacy group UnidosUS. Lot, welcome to the show.

LOT DIAZ: Thank you.

MARTÍNEZ: All right. Now, when most Americans buy a house, they take out a traditional 30-year mortgage. But there's a whole world of alternative financial products out there. Some have some pretty significant risks. Lot, tell us about how these products work and what they are.

DIAZ: People get into these products for two reasons. One, they're not aware there's other options. A typical family gets an FHA or conventional mortgage that is priced at appropriate levels. Families need to know how to apply for those, get into those. Many times, they're sold for products that are not these types. They're higher cost. So that's the - one reason. And the second reason - they have not protected their credit. And so when they start to apply for a conventional or FHA loan, they can't beat the filters, and they get denied. They seek other avenues. And there's plenty of marketing for these alternative products that are more costly and can present a risk over time to a family to maintain their home.

MARTÍNEZ: When it comes to just simply qualifying for a loan to purchase a home, when it comes to that, are Latinos maybe behind the eight ball a bit? Are they not getting approved as much?

DIAZ: The data seems to indicate that's the case. What we've seen within our partners in the market is that they tend to get declined (ph) at a greater rate. And many times, it's really because they don't fully understand or respond to the lender in a way that the lender's expecting, or they're asking for documentation and other items that are required that is difficult for them to get because their income is not maybe a strict salary. It could be a small business. There could be two or three income sources that they're drawing from, and that just doesn't conform to a typical mortgage origination system.

MARTÍNEZ: Yeah. According to the National Association of Hispanic Real Estate Professionals, Latinos are 81% more likely to be denied than non-Latino counterparts. I mean, so considering that Americans really derive most of their wealth from real estate - typically the homes that they own - what does this mean when so many of the country's would-be homeowners, aspiring homeowners, can't access traditional mortgages?

DIAZ: Well, if you've seen the dialogue in more recent periods around the wealth discrepancies between communities of color and the white population, homeownership has always been the driver of families' wealth for all races and ethnicities. So if Latinos are shut out or discouraged from becoming homeowners, that has a huge impact on the collective family wealth in the community. So the biggest thing - and wealth is - what does wealth do for you? It gives you the ability to borrow at affordable rates. It allows you to make money available for college, for health emergencies, for a lot of other things that many families just take for granted.

MARTÍNEZ: Yeah. And when you see gentrification happening in areas where there are - typically, Latinos have been living there for decades, for generations. And if their ownership and their wealth is not tied to the real estate, especially the place that they live in, that's when these neighborhoods all of a sudden change drastically.

DIAZ: That's absolutely true. And there's just a gazillion examples of that across the country. There's two things that happen. Pricing is driven up by a variety of factors. And if families are not owning and renting, what goes up - when real estate price goes up, rents go up, and they are forced out of the neighborhood. Ownership is the only thing that can protect them in these kinds of situations.

MARTÍNEZ: And this country, just in general, is also in the grips of a national housing shortage. How is that affecting Latino homebuyers in particular?

DIAZ: If you talk to anybody in real estate, they always say a lack of inventory is a big problem because - why? - it increased prices and makes it harder for families, particularly families buying their first home, to enter the market and start the process of homeownership.

Interesting thing - foreclosure crisis happened. Over 10 million families lost their home during that crisis. A majority of those homes were bought by investors. And then when they went back into the market, they became a home to rent rather than a home to own. So that shrunk the market. The pandemic and other factors have made the things that you need to build homes more expensive. And it's resulted on the moderate income-priced home that gets shut out. The higher-end homes still get built because people with more wealth can buy those homes. So it's the moderate income-priced home that's been kind of impacted a lot by the increased cost.

And then the federal government has not increased its investment in housing, even though the population has grown substantially over time.

MARTÍNEZ: And you mentioned starter homes, those homes that are or used to be affordable for young families - because that's how it used to work. A young family would be able to look for a starter home, and then as their family grew, along with their savings and their wealth, they could look for a bigger house to meet their growing family's needs. And many experts now think that, really, starter homes are not realistic for anyone in particular. But if that's the case generally, Lot, I mean, what do you think this might specifically mean for Latinos who aspire to be homeowners?

DIAZ: Homeownership is a ethic that is really emphasized in our community. And so what that means - they will go to all lengths to kind of become a homeowner. So what that means is, really, they going to have to be much more prudent consumers. We, as - the commercial entities in this country have to make sure that they're providing services that will put Latinos into homeownership in an affordable way and, as we like to say, sustainable over time. There are down payment assistance programs in some localities. There's organizations, like ones we support, that offer families a path to kind of get there. So it's really accessing either support services, programs that support homeownership - but most importantly, always seeking more information before you enter the process rather than responding to an ad or someone who says, I know someone who can give you an affordable mortgage if you can find a house.

MARTÍNEZ: That's a Lot Diaz. He's vice president of Housing and Financial Empowerment with the Latino advocacy group UnidosUS. Lot, thank you very much.

DIAZ: Thank you very much. It was a pleasure.

(SOUNDBITE OF MARK PRESTON'S "BLUE HILL") Transcript provided by NPR, Copyright NPR.

A Martínez is one of the hosts of Morning Edition and Up First. He came to NPR in 2021 and is based out of NPR West.