November 16, 2007

Hispanics on Both Sides of Subprime Lending

By Steven Holland
Hispanic Business

Two words – “subprime lending” – captured headlines at midyear. Immortalized as the practice of making loans to borrowers with deficient credit histories, subprime lending has led to more than 100 major mortgage lenders closing their doors.

While the subprime loan fiasco became frontpage news, many feel it has affected Hispanic housing consumer markets even more.

The Center for Responsible Lending (CLR) says Hispanics hold roughly 40 percent of mortgages in the troubled subprime market.

Earlier this year, the CRL also counted the number of subprime mortgages given to first-time homebuyers and then projected subprime foreclosures arising from these mortgages.

Variance between the two figures amounted to a net a loss of homeownership for almost 1 million families over the past nine years. The CRL projects that nearly 38,000 Hispanic families will lose their homes due to subprime lending.

The National Council of La Raza (NCLR) has produced comparable Hispanic impacts from the subprime-lending collapse.

In April, they joined with other civil rights organizations, calling for a six-month moratorium on subprime home foreclosures.

Data released in September by the Federal Reserve confirmed the CRL’s overall projections as well.

After accounting for factors such as income, credit, and loan-to-value ratios, the Fed said Hispanics were far more likely to be put into more costly subprime loans than the general market.

Savvy investors can earn profits in the best and worst markets, however, and it’s hard to ignore some of the financial benefits subprime lending may have provided to Hispanic home purchasers.

In five of some of the most popular places for Hispanic homeownership in the United States, the housing appreciation rates have been phenomenal.

According to the Office of Federal Housing Enterprise Oversight, housing appreciation rates over the past five years have increased by 142 percent in Riverside, California, 136 percent in Los Angeles, 133 percent in Miami, 97 percent in Phoenix, and 51 percent in Chicago.

Consider as well the median home prices, according to the National Association of Realtors as of the second quarter of 2007, for Riverside ($397,000); Miami ($384,000); Phoenix ($265,000); Chicago ($283,000), and Los Angeles ($593,000).

Despite its downside, subprime lending has allowed significant numbers of Hispanics to take advantage of strong housing appreciation in several high-priced housing markets.

In the top 10 Hispanic demographic metropolitan areas, the average housing appreciation rate over the past five years was 83 percent. Also, the most recent national median area home pricing was $224,000, well below the prices in eight of the top 10 metropolitan areas for Hispanic populations.

Even without factoring in the tax advantages of homeownership, the financial performance of Hispanic homeownership, even with higher-cost subprime lending, easily exceeded the stock market performance and conceivably transferred significant wealth to Hispanic housing consumers.

Hispanic businesspeople are meeting the challenge of harnessing the power the mortgage industry has for building wealth in Hispanic housing markets.

Here’s a look at some of the trailblazing Hispanic entrepreneurs in the mortgage industry.

Miguel L. Viesca began operating Buena Ventura Home Loans in 2006 as an independent, full-service mortgage broker in Ventura County, California. Mr. Viesca is approved to offer conventional loans, as well as government financing, and offers a wide variety of mortgage loan products.

He says that subprime lending severely damaged the trust Hispanics have with mortgage professionals, and he believes regaining that trust is the essential to survival in today’s housing market.

Gary Acosta is the CEO of Prado Mortgage, a correspondent mortgage lender in San Diego, California, and is also the co-founder of the National Association of Hispanic Real Estate Professionals (NAHREP). The group is the nation’s largest Hispanic real estate trade organization with more than 15,000 members.

Prado operates in three states, with 25 loan originators in Texas, 12 in California, and four in Nevada. Some of the “best practices” Mr. Acosta subscribes to are attracting the best and the brightest from the Hispanic community for loan originator positions: maintaining strong relationships with real estate agents, builders, and housing counseling agencies; and having excellent product knowledge to help clients select the most appropriate and cost-effective mortgages.

“Expect to see a number of world-class Hispanic mortgage operations in the coming years,” Mr. Acosta says. “It’s good for the industry, it’s a great opportunity for Hispanic entrepreneurs, and most important, it’s best for the Hispanic consumer.”

He believes one of the biggest challenges to Hispanic homeownership is getting investors to change the way they “grade” [underwrite] credit, and to incorporate Hispanic nuances to better understand, assess, and price the credit risks.

Tino Diaz oversees Vertex Mortgage Bankers, a wholesale mortgage operation, underwriting and funding loans from mortgage brokers active in southeast and central Florida.

He is the elder statesman in the Hispanic mortgage business, with more than 30 years invested in Hispanic homeownership.

“This nation is in desperate need to bring underserved communities into homeownership,” Mr. Diaz says. “Using homeownership to build wealth, they literally can lift themselves up and become entrepreneurs. We need them.”

He says that 80 percent of all of the loans Vertex funds are to Hispanic borrowers and that his loans have been documented to outperform the general market.

Yet, it is also a point of frustration since, like Mr. Acosta, he believes investors should give his clients better pricing for their better performance.

Even though the current conditions in the mortgage market may be considered poor, the future is nevertheless still bright for Hispanic consumers. Over the next 20 years, Hispanics are expected to compose 40 percent of all first-time home-buyers and 33 percent of all home-buyers by 2010.

While many of the bad players in the mortgage business have recently exited, a number of progressive-thinking Hispanic businesspeople have recently entered. Hispanic mortgage professionals are confident that after riding out the current slump in the housing market, the opportunities that await them are boundless.

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