Casa y Comunidad: Henry Cisneros on Hispanic Homeownership
December 13, 2006
Charles Wisniowski -- Mortgage Banking
Even in an age where the term "expert" can be tossed around far too freely, Henry Cisneros could still reliably be called a "housing expert." He's got the resume to back it up.
As secretary of the Department of Housing and Urban Development (HUD) from 1993 to 1997, Cisneros was the standard-bearer for housing policy for the Clinton administration as he oversaw the federal agency charged with providing affordable housing and promoting community development.
In 1981, Cisneros was elected the first Hispanic-American mayor of a major U.S. city-San Antonio, Texas, where he served four terms. In his bio, Cisneros says he helped rebuild the city's economic base and spurred the creation of jobs through massive infrastructure and downtown improvements, "marking San Antonio as one of the nation's most progressive cities."
Following his term as HUD secretary, Cisneros was president and chief operating officer of Los Angeles-based Univision Communications Inc., the Spanish-language broadcaster, from 1997 to 2000.
Currently, Cisneros is executive chairman of the San Antonio-based CityView companies, community-building firms dedicated to producing work-force homes in America's cities. He is also a member of the board of directors for Countrywide Financial Corporation, Calabasas, California; Live Nation, Beverly Hills, California, an urban entertainment company; and Avanzar Interior Technologies, San Antonio, an automotive technologies company.
Cisneros holds a bachelor of arts degree and a master's degree in urban and regional planning from Texas A&M University, College Station, Texas. He also earned a master's degree in public administration from Harvard University, Boston, and a doctorate in public administration from George Washington University, Washington, D.C.
Cisneros has been the author, editor or collaborator of several books, including, most recently, Casa y Comunidad: Latino Home and Neighborhood Design, which looks at the state of Latino homeownership.
Cisneros recently spoke with Mortgage Banking in a telephone interview about his book. He shared his thoughts about the future of minority homeownership in the United States and other aspects of housing policy.
Q: Your book focuses on home and neighborhood design for the growing demographic of Latino homebuyers, but you've also noted there is an opportunity for mortgage bankers and the financial services industry in general to recognize a tremendous untapped consumer/homebuyer potential within the U.S. Latino population. Can you quantify the size of the business opportunity for mortgage bankers?
A: By one estimate, fully a quarter of home sales going forward in the next decade will be to the nation's Latino population. Of the 10 million household formations that [will] lead to homeownership opportunities over the next decade, it's expected that about a quarter of those will be Latino families.
Because of the rapid growth in the Latino population, the younger age of [the] Latino population with the(ir] household formation years still ahead and the larger number of children, it is a very substantial population, which is a part of the message of this book.
Q: How can lenders best recognize this potential and adjust their mortgage products and marketing accordingly?
A: The first thing is to recognize that this is increasingly a national phenomenon. Heretofore we have thought of it as [only] a handful of places where this might be relevant, but in fact it is clear this is emerging as a national phenomenon.
So it's not just California, Texas, Florida, as we might have expected or thought of before. But [there are] very fast rates of (Latino population] growth in Arkansas, Georgia, the Carolinas, Washington state, Nevada and, clearly, Arizona [and] Colorado. So it is truly a national phenomenon at this point.
Q: Although there's been some growth in Hispanic homeownership, the homeownership rate gap between whites and Hispanics remains still sizable. What are the key factors that have prevented that gap from closing significantly?
A:I think that income growth has not occurred at the rate that we would hope-that's been one factor. In addition, [part of] the Latino population continues to be hampered by issues of documentation because they are immigrants or recently arrived.
And many [Latino consumers] have not yet come to terms with the nature of the U.S. mortgage system, so they are hampered by the functioning of the system itself. Increasingly, we're seeing many of these barriers fall, and the sheer numbers of people are becoming quite significant.
Q: Are there sufficient business incentives currently in place for lenders to find it in their business interests to aggressively serve the Latino homebuying market? If not, what would you add to the mix?
A: More and more home-mortgage specialists are recognizing the growth of this market, and they're reacting in several ways.
One, [they are starting] to market to this community and to put themselves in a position to understand it, learn it and address it directly. Point two: They are staffing for it by adding persons who know the Latino community, who are trusted within the Latino community, who are bilingual and whose abilities relate to translating complex transactions to people in straightforward ways.
Third, many are actually redesigning, if not product, then at least materials that describe products in terms that the community can relate to, including frequently in their native language and in relation to products that they may be familiar with from their home country.
Those are the kinds of things that I think mortgage bankers are doing. Those that are doing it well find themselves with a very strong market opportunity, strong demand and a relatively goodperforming customer. That is to say, low foreclosure rates, because people do work so hard to stay in a home once they are in it.
Q: Can you articulate what makes the Latino would-be homebuyer distinctly different from other consumer segments of the home-buying market or even from other minority borrowers?
A: In the book, we focus on several characteristics. One is the size of the family; they tend to be larger. second, there are more children in the community, [and] families tend to have more children under the adolescent years [in age]-so that has implications for the kind of product and design of homes.
The community also has some patterns of sociability that involve multigenerational relationships. [There are] lots of livein parents, in-laws, grandparents, etc., and that may have implications for the nature of housing.
Also work habits. There are multiple workers per household. The Latino community has more multiple workers per household than any other population group in the country. That clearly has implications not just for the housing product, but for financial products as well, as multiple workers may be able to pool income and qualify for mortgages that otherwise they might not [be able to qualify for] as individuals.
That does suggest, then, that mortgage [loan] officers will need to look at the effects of pooling resources, of a combined track record of paying rent, utilities, car payments, etc., as a group. It may give a mortgage officer greater comfort than simply going with the traditional single income of one head of household.
The whole point of this book is [to] look, in practical ways, at the characteristics of this community, which are slightly different. Then let's be equally practical about designing both home products and financial products that relate to their needs, because there is a huge opportunity here.
Between now and 2050, when the U.S. population grows by 130 million people, we're going to go from 280 million in 2000 to 410 million in 2030, according to the U.S. Census. In that time the Latino population will be 63 percent of that growth, because of these dynamics I've described-larger families, younger children-all of them moving into the years of forming families themselves, acquiring bigger-ticket household investments.
That's what we're looking at. We're looking at virtually half of the population growth in the United States going forward in all parts of the country, metropolitan and suburban.
Q: From a marketing outreach standpoint, can you single out a lender or lenders that have done a good job of tapping into the growing Latino homebuyer market? How might other lenders replicate that success through inroads of their own?
A: This may have aspects of a conflict of interest, as I'm on the board of Countrywide Financial. In fact, at this moment I've just left a board meeting, but Countrywide is the leading lender to the nation's Latino population.
They have put in place an emerging-markets commitment, a task force within the company [and] an officer responsible for that. They are marketing to this community in Spanish, [and] they are looking hard at the placement of their offices to make sure there are well-located retail offices. Those are the kinds of things that Countrywide has done, and I would regard them as one of the better [lenders].
They continue to modify their mortgage product in a way that relates to the way the community lives. Now, others may go even farther by dealing with the issue of tax identification numbers. The Citigroup mortgage team, I believe, has gone down that road.
And Banco Popular [North America, Rosemont, Illinois] is another one that is working on providing mortgages with tax identification numbers. So new thinking, new products, new trail-breaking.
Q: The book addresses demographics, and you've talked about the spread of Latino immigration to nontraditional geographic pockets all across the country. If you were a lender and setting up branches, where, geographically speaking-either city or metro region-would you prospect for future Latino home-buying business?
A: The traditional states and the traditional markets all across California, all across Texas, all across Florida, Arizona, Colorado, Nevada, New Mexico, New York (the metropolitan area), Chicago the metropolitan area. Those are the traditional places, and they are hard-fought-over.
If I were in the business, I would be looking to the places where loyalty has not yet been established and where there was new opportunity. I would say places like Reno and Las Vegas [Nevada]. Places like the Seattle area [and] the Midwest, including the Chicago-Milwaukee corridor.
Q: You've noted that this population growth is not just an urban phenomenon, but it's moved on to the suburbs as well. Is that correct?
A: That's right. The suburbs of Atlanta are rapidly growing with a Latino community, and other places like that.
Q: Would you share your thoughts on the president's current "path to citizenship" and immigration reform efforts in Congress, with respect to how it could affect homeownership and financial institutions in the United States?
A: First of all, the president, I think, is correct in arguing for a comprehensive immigration strategy that is not just border security, but includes a guest-worker program that deals in practical ways with the 12 million people who are already within the country who need to be brought out of the shadows.
And then [to also offer] a path to citizenship eventually, in order to encourage those people to participate in a formal guest-worker program. So all three elements-border security, guest worker [program] and path to citizenship-are important.
The latter two elements will be particularly powerful-one might even say explosively powerful-in fueling homeownership and investment in housing. Because suddenly 12 million people who are in the country working, many of them working for decades [and] with families, will be able to participate in the homeownership economy as opposed to simply the rental economy.
Q: Is there any estimate as to how much "unbanked" income is floating out there that could be infused into the financial system?
A: I've not seen that, and it's not been discussed that much in this context. But every bit of experience that I have had and anecdotal knowledge tells me that this could be just a turbo-charging effect in the economy.
Because suddenly you have people who have savings, who have been working, who have been denied the opportunity to participate in ownership because they don't have proper documentation. As they do become legal-they don't have to become citizens, just legal as guest workers-they will naturally migrate to a homeownership posture.
These are people who are workers. That's the very definition of their character.
Q: Regarding the GSEs' [government sponsored enterprises'] mandated housing goals: Do you think the GSEs' affordablehousing goals for minority homebuyers are aggressive enough, or is it sufficient given the current market environment?
A: Well, the office that sets those at HUD … takes that number under consideration, recommends it to the HUD secretary and they push [the] outside edges of the envelope as to what the GSEs can do-what they can afford and what they can reasonably do.
I'm not going to second-guess that analysis. I was once responsible for certifying that analysis, so I respect the current officials in place enough to know that they have weighed all the factors and these are the numbers they think they can push the GSEs to do.
There's a lot of pressure to raise those numbers. So if they have established them, it's because they really think that's where they ought to be. So I support them.
Q: Regarding the current FHA [Federal Housing Administration] Modernization Act to reform FHA: Were you surprised that FHA was allowed to become so irrelevant to the market? Can you talk about how it would directly benefit Latino homebuyers to modernize the program?
A: I think our country has been well served-and this is just a general background statement in principle-our country has been well-served by an aggressive, focused, competent FHA.
When we have been active and strong, the country has benefited immensely. I had the privilege of serving with Nicolas Retsinas [current director of Harvard University's Joint Center for Housing Studies, Cambridge, Massachusetts] when I was HUD secretary. Many people have said to me that he was one of the best FHA commissioners ever.
His tenure coincided with the movement of minorities to a higher homeownership rate. The country achieved the highest homeownership rate on record thanks to low interest rates and a relatively strong economy through the 1990s.
The homeownership rate for the country moved from 66 percent to 69 percent. The minority homeownership rate, while considerably lower, actually grew faster-from about 42 percent to about 49 percent in that time period.
Source: (C) 2006 Mortgage Banking. via ProQuest Information and Learning Company; All Rights Reserved