Unfair Practices Hurt Hispanic Homeownership

03/11/2013 10:17 am ET
  • Susana G. Baumann VOXXI

El sueño de la casa propia is not only an American dream. Nothing is more important for a Hispanic family than owning their own home and settling in a place where their children and grandchildren will grow roots while they grow old. It is a way to “belong.”

But despite the misleading headlines about the US household wealth recovery, Hispanic homeowners and homeowners-to-be are still at the bottom of the pit.

The real estate crisis left many in disarray, facing foreclosure proceedings of the family home they worked so hard to acquire. Others “under the water” lost their only asset and the equity in their homes, a value that perhaps took years and multiple mortgage payments to build.

Yet, in the middle of the soft but increasing real estate industry recovery, Hispanics are progressively becoming the fastest growing group of first-time home buyers. Within the 11 percent of people looking for a new home, Latino potential first-time buyers have increased 38 percent since 2010, according to the National Association of Hispanic Real Estate Professionals (NAHREP) 2011 report.

These enthusiastic hunters of well-priced real estate properties are facing new challenges and it is neither lack of access to mortgage loans or financial institutions nor lack of knowledge of the real estate process, not even language barriers, obstacles known to be part of the Hispanic homeownership gap. These are young, second or third generation well-qualified individuals and couples looking to realize their dream.

Hispanic homeownership threatened by bias bidding process

What is preventing Hispanics from becoming the new generation of first-time buyers then?

“It is not the credit crunch or the lack of financing, a general idea about the Latino potential homeowner but the obstacle is really the lack of inventory and the unfair conditions Hispanics are facing in the bidding process against large cash investors,” Gerardo Ascencio, 2012 NAHREP president, told VOXXI in an exclusive interview.

A 22-year veteran of the real estate industry, owner of a 50-agent operation based in the San Fernando Valley and well-known advocate of the Hispanic community, Ascencio believes Latinos represent a strong demand of good housing opportunities but are being worn out by the multiple offers they need to make in order to compete with REO disposition program pool sales.

“We see 20, 30 or 40 offers per listing and potential homeowners making multiple offers to several properties but after 3 to 4 months, they get discouraged and worn out. They get beat up by cash buyers and pool investors who offer a fast closing even at lower prices while Latino homeowners, many of who hold FHA or VA backed mortgages, need to wait as long as 60 days for their contracts to close,” Ascencio explains.

Banks growing inventory works against Hispanic homeownership

Despite Fannie Mae and Freddie Mac insistence in wanting “to keep people in their homes whenever possible,” the system flaws are blatant. The REO pipeline is not moving fast enough. The number of foreclosures grew exponentially peaking in May 2010 until it started decreasing after the lender’s robo-signing and forgery was exposed in the fall of the same year, which slowed down the foreclosure procedures.

Banks have been reluctant to negotiate loan modifications because of market vulnerability, high unemployment rates and lack of trust in the ability of homeowners to repay their already troubled or “under the water” properties. On the other hand, keeping an inventory of empty houses depresses neighborhoods and presents an occasion for vandalism and property decay.

“The best way to heal the real estate market organically is to sell vacant properties to potential homeowners for top dollars,” Ascencio said. “Homeowners are vested in their communities, their barrios, they participate in school PTAs, they contribute to their neighborhood cleanup and safety, they vote.”

But financial institutions, banks and agencies are taking the easy way out with their REO inventories, according to NAHREP president. “They do not want to deal with individual homeowners, pay real estate agents’ commissions, and keep maintaining vacant properties including taxes payments, repairs, and expenses,” he added. “They prefer to sell at a lower price in 20 days rather than wait 45 to 60 days.”

Banks low prices to cash buyers hurts neighborhoods
The Alternative Disposition program has a ripple effect in towns and cities where foreclosed properties have hit the hardest, many of which are largely populated by Hispanics. Lower prices result in less property tax collection which in time affects all public services including police and firefighters, school budgets, parks and recreation and more.

“I have seen a great spiral effect here in California, where a part of this large Hispanic community has been distressed, as well as in other cities and states around the country. For instance, the case of Phoenix, Ariz. where last year alone, almost 90 percent of foreclosed properties have been sold to investors; those numbers are staggering!” said Ascencio.

“The state has seen the property value increase 33 percent, however, this price rise is artificial and does not benefit the state or state residents but large Wall Street investor firms and cash investors. These numbers mean only one in 10 foreclosed properties in Arizona is owner-occupied. In a state with over 30 percent of Hispanic population, this is a real tragedy.”

NAHREP believes despite efforts by the Obama Administration, enacting of existing regulations has not been enough and system flaws need to be corrected. On March 27 in Washington DC, the organization will conduct a call to action to speak against bulk sales and other so-called “neighborhood stabilization programs” including renters occupied and deed-for-lease programs which, in themselves, are not an organic solution to heal the real estate market crisis.

“We believe the alternative disposition programs are the number one challenge that Latino potential home-owners face today. We want to talk to as many members of Congress as we can to ask them to step up and hold agencies and banks highly accountable for these unfair conditions,” Ascencio said.

How to boost Hispanic homeownership

The organization will propose possible solutions such as minimizing the alternative disposition programs, extending the First Look period so individual buyers can have additional time to make their bids, pricing the offerings at real market price –many properties are offered at a higher price in the first 15 to 20 days, only to see the price reduced when the First Look period is expired– and ask FHA to be more flexible regarding property conditions to make additional inventory available to individual buyers.

“We are not asking FHA to lend money on properties with violations but sometimes, the repairs needed are very small –within $500 to $1500 dollars– a situation that could easily be resolved with a small escrow account that requires the new buyer to take care of the repairs within the first week of ownership,” Ascencio explained.

The real estate expert also believes townships and municipalities can do their fare share in this situation. “They can crack the whip on banks and agencies to keep properties in good and safe conditions,” he said.

“It almost seems this lack of current regulations enforcement tend to benefit investors and act in favor of quick liquidation strategies while leaving potential homeowners behind. I cannot speak for the intentions of banks and agencies but these actions are for sure not in the best interest of our communities,” Ascencio concluded.

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