June is American Housing Month, when we celebrate the variety of housing choices that Americans make. Whether owning or renting, the basic principle is that you should be free to choose the home that works best for you and your family.
Unfortunately, that choice is too often denied. Instead, the unintended consequences of how new government rules are being implemented have created artificial barriers to getting a mortgage--and these barriers are hitting the Latino community especially hard.
There was once a clear path to homeownership. You saved a certain amount to put down and made sure that you could afford the monthly payment. If a banker knew you and knew that you were a reliable person, you might be able to get a mortgage even if you didn't have years' worth of tax returns and pay stubs. But now, allowing bankers to rely on their knowledge of your integrity is over.
The new rules are well-intentioned. In an effort to protect borrowers, they have very strict requirements, requiring a lender to thoroughly document a customer's ability to repay the loan. That means a homebuyer must have regular income, documented by two years of tax returns, pay stubs, account statements and credit history.
Unfortunately, the way these rules have been implemented has left many bankers in hazy territory. They have created a lot of uncertainty about what happens if a lender makes a loan outside of a narrow set of boundaries, and the uncertainty makes it harder for potential customers.
Thus, instead of protecting borrowers from getting the wrong kind of mortgage, these unintended consequences are protecting some borrowers from getting any kind of mortgage. The burden is falling hard on lots of hard-working people who play by the rules, from the self-employed to retirees to first-time buyers. But it is especially damaging to many Latinos, who find to their dismay that they can't buy the first home of their dreams. They can't begin building the wealth that comes with responsible homeownership.
For example, Latinos in the United States are more likely to work seasonal jobs or to be self-employed, which makes it much harder prove their income in the way they're now expected to. Tax returns may be accepted, but this also falls hard on Latinos, many of whom are recent immigrants who have only recently begun paying U.S. taxes.
Latinos are also more likely to share housing with other families to save money or rent out rooms to help pay the mortgage. But rental income cannot be counted toward ability to repay.
Latinos are creditworthy borrowers. Studies have shown that even in the depths of the recent housing crisis, low-income borrowers in traditional mortgages have default rates comparable with those of the most creditworthy borrowers.
We know no one intended to crimp mortgage credit for the Latino community. But that's what we are observing, and only Congress and the regulators can undo these unintended consequences. Nobody should stand in the way of creditworthy Latino homebuyers.
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