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  • 1. THE FIVE POINT PLANRefocusing the Future of Minority Homeownership
  • 2. e Asian Real Estate Association of America (AREAA), the National Association of Hispanic RealEstate Professionals (NAHREP), and the National Association of Real Estate Brokers (NAREB) represent more than 70,000 real estate practitioners of color and the growing minority community of America. Founded in 2003, the Asian Real Estate Association of America is a non-pro t professional trade organization dedicated to promoting sustainable homeownership opportunities in Asian American communities by creating a powerful national voice for housing and real estate professionals that serve this dynamic market. AREAAs membership represents a broad array of real estate, mortgage and housing-related professionals that serve the diverse Asian American market. For more information, visit e National Association of Hispanic Real Estate Professionals, a non- pro t 501(c)(6) trade association, is dedicated to increasing the home- ownership rate among Latinos by educating and empowering the real estate professionals that serve them. Based in San Diego, NAHREP is the premier trade organization for Hispanics and has more than 17,000 members in 48 states and 62 a liate chapters. For more information, visit NAREB, founded in 1947, was formed out of a need to secure the right to equal housing opportunities regardless of race, creed, or color. Since its inception, NAREB has participated in and promoted meaningful challenges and legislative initiatives to ensure fair housing for all Americans now with 88 Local Chapters nationwide. For more information, visit the website at:
  • 3. OVERVIEW ere has been much debate about what the diverse communities may be perma- went wrong with the housing market, and nently deferred. whether the new legislative and regula- tory remedies will ensure a di erent and Our collective belief is that sustainable better outcome. From the establishment homeownership transforms communi- of the Consumer Financial Protection ties, fosters economic growth and Bureau to the SAFE Act, the Federal strengthens families. Both the White government has made the transparency House and Republicans have questioned of mortgage products and the protection the underlying value of homeownership of borrowers a renewed priority. Yet, as in America in the a ermath of the fore- consumers and real estate markets closure crisis. e three multicultural real continue on the long road to recovery, we estate associations reject this view and need to ensure our policy actions today rmly believe that homeownership is still set a strong foundation for sustainable a noble policy goal and worthy personal homeownership for the years to come aspiration for all Americans. and not hamper the ability of multicul- tural homebuyers to achieve their dreams e Multicultural Real Estate Coalition, of homeownership. made up of the Asian Real Estate Asso- ciation of America, the National Associa- Some have used this housing crisis to tion of Hispanic Real Estate Professionals point ngers at the Community Reinvest- and the National Association of Real ment Act, GSEs’ A ordable Housing Estate Brokers, is putting forth a Five- Goals and other government e orts to Point Plan to bring a balanced and drive access to credit for traditionally common sense approach to restoring the underserved borrowers. We reject this dream of homeownership while making misguided and misinformed assertion. the housing market more vibrant and While there is a clear need for more stable. Our Five-Point Plan looks forward a ordable rental housing options in and focuses on sustainability, account- America, it must not come at the expense ability and responsibility on the part of all of reducing the focus on homeownership parties in the real estate transaction. is in America, particularly as minorities plan is an a rmative statement about the continue to lag behind in homeowner- value of homeownership and its potential ship rates. If we do not thoughtfully to transform communities. Our plan rebuild the housing and mortgage calls for more diverse solutions to meet market, the dream of homeownership for the future housing needs and demands2 Refocusing the Future of Minority Homeownership
  • 4. more preparation and responsibility on strongly oppose the perspective thatthe part of consumers and the industry homeownership strategies must bealike. It also calls on the industry to curtailed and that government must stepdevelop unique and innovative solutions back from its support of the secondaryto the housing challenges facing the market. e future of the multiculturalmulticultural communities today and in community depends on a strong realthe future. We need a practical and estate market and continued access tobalanced regulatory approach to oversee- stable sources of reliable mortgage systematic risk and protecting Without it, the progress we have made asconsumers so that we maintain the a community will be lost for generationsimportant ow of mortgage capital. We to come. Our Five-Point Plan speci cally calls for: 1. A balanced regulatory approach that will support and encourage sustainable homeownership for quali ed and responsible consumers seeking to purchase a home; 2. Increased diversity in the nancial services arena and adequate oversight of minority business utilization and senior management hires; 3. Maintaining strong government support of the secondary market system that includes the broad network of primary lenders, government-supported securitization agencies, and FHA that collectively works to broaden credit availability for all communities at all times; 4. Strong consumer protection oversight to restore consumer and market con dence in homeownership; and 5. Mandatory nancial education for all rst-time homebuyers that prepares them for the responsibilities, risks and rights associated with homeownership. Refocusing the Future of Minority Homeownership 3
  • 5. Common Sense Regulatory ApproachQuali ed Residential Mortgages and Ability to Pay e passage of the Dodd-Frank Act Product features that mitigate payment tory framework should provide lendersbrought about some of the most signi - shock; some exibility and discretion to allowcant regulatory changes in modern compensating factors in its underwritinghistory. From broad nancial systematic Restrictions or prohibitions on for small business owners. Also, arisk oversight to a “quali ed residential non-traditional features like negative minimum down payment requirementmortgages” (QRMs) de nition, the law amortization, balloon payments, and would create a disadvantage in theattempts to govern the way housing prepayment penalties; and minority community and for rst-time nance is conducted from top to bottom. buyers. Rather than limiting QRMs to Mortgage insurance on low down loans with minimum down payments, we e Coalition appreciates the overall payment loans. recommend a return to more prudentthrust of the Dodd-Frank Act and its product and underwriting practices. Wee ort to provide added oversight and e Coalition believes that an overly do not want to lose the long history ofprotection to consumers and the nan- narrow de nition of QRM standards can responsible and sustainable lending tocial market alike. However, we believe hurt borrowers, particularly minority low-down payment borrowers inthat regulatory bodies must carefully and traditionally underserved consum- underserved markets.implement the law in a way that ers. Some have suggested that the QRMminimizes unintended outcomes. For standards should include a very high We support the overall goal of the QRMinstance, we believe careful calibration of down payment requirement or high and the regulatory agency’s e ort tothe QRM exemption and ability to pay FICO cut-o in order to limit QRM create a strong underwriting frameworkde nition is critical to ensuring that eligibility to a narrow segment of the that promotes responsible lending anddiverse housing consumers continue to market. We believe those actions could borrowing. Yet, we must proceed withhave appropriate access to credit in have signi cant unintended impact on caution. Narrow underwriting guidelinesAmerica. the diverse communities. for “prime” loans created the opportunity for the proliferation of “subprime”While the risk retention provision in the RECOMMENDATION lending. If we do not strike the rightAct is intended to align the interests of balance around QRM de nition, we willborrowers, lenders and investors by e Coalition strongly urges a balanced unintentionally create a similar scenariorequiring a hold back of capital, it could approach to QRM exemption de nition. for non-QRM lending. In the end, theincrease the cost of mortgages funded If the agencies establish a QRM that is diverse markets will once again face highthrough securitization thereby increasing signi cantly tighter than current market rates and fees in the mortgage marketthe cost of credit for many borrowers. standards, it would mean that countless and jeopardize the housing recovery.Recognizing this challenge, an exemption creditworthy borrowers would be labeledfrom the risk retention requirements for as higher risk borrowers. A potentiallycertain high-quality, lower risk conven- perverse impact of such action wouldtional mortgages were added to the Act. limit many minority and underserved e statute requires the QRM de nition borrowers to higher cost be based on “underwriting andproduct features that historical loan A QRM de nition that does not recog-performance data indicate result in a nize the unique borrowing characteristicslower risk of default,” and provides clear of multicultural homebuyers will createguidance on the types of factors to be excessive barriers to homeownership.used: For instance, the minority community is more likely to be self-employed small Documentation of income and assets; business owners, which makes the documentation of income a challenge. Debt-to-income ratios and residual Rather than automatically categorize income standards; these borrowers as high risk, the regula-4 Refocusing the Future of Minority Homeownership
  • 6. Diversity in Financial ServicesAccording to a 2008 study by the General (aka Dodd/Frank) among other things,Accounting O ce, less that 10 percent of require the establishment of an o ce ofemployees in nancial services rms are minority and women inclusion. is o ceminority. e industry gures for will be designed to compel many of thecontracts awarded to minority-owned participants of the nancial servicesbusinesses are even lower. industry to create policies and programs that will result in increased diversityTHE NEED FOR PROGRAMS THAT within their employment ranks and theirSUPPORT DIVERSITY suppliers. e new laws could also provide educational services for small businessesWhile there is ongoing debate about looking to provide services to largewhether racial discrimination still exists in nancial institutions and should createmainstream America today, there is little unprecedented transparency into how thedisagreement that institutional discrimi- nancial industry is performing withnation was the status quo in our country respect to diversity.just a few decades ago. What is not widelyrecognized today is that this legacy of In addition to their employment roles,discrimination and signi cant residual banks, the GSEs and other nanciale ects still exist. e notion that hiring institutions employ thousands of realdecisions are made solely on merit is estate brokers, appraisers and other smallsimply untrue. In reality, personal businesses to assist them in a myriad ofrelationships and connections are as di erent areas including the acquisitionimportant as anything else and, for the and disposition of bank-owned real estate.reasons stated above, minorities are less Minority communities have been dispro-likely to have these relationships in place. portionately impacted in the foreclosure erefore the federal government must crisis. Economic recovery in many ofcontinue to support proactive e orts to these local communities is directly tied toincrease diversity, especially in the the employment of minority-owned small nancial services sector where govern- businesses by the nancial servicesment and taxpayer support has been industry.widely leveraged yet the industry main-tains an extremely poor track record for RECOMMENDATIONinclusion and diversity. e bottom line outcomes of Dodd/FrankAdditionally, diversity in nancial services and HERA for America’s minorityis critical for the long term health of the communities will depend on whetherindustry itself for two primary reasons: congress ensures that the elements relatedthe ability to serve the growing minority to diversity are adequately enforced. Lawsconsumer base and the value of having that are not enforced have little e ect ondiverse perspectives when it comes to a the status quo, however, if the spirit of rms planning process. these new laws is ful lled the result can be profoundly positive for our minorityCONGRESS’ SOLUTION communities. NAHREP, AREAA and NAREB strongly urge congress to pursueRecent enhancements to the Housing and the vigilant enforcement of section 342 ofEconomic Recovery Act (HERA) and Dodd/Frank and the recent diversitySection 342 of the Wall Street reform bill enhancements to HERA. Refocusing the Future of Minority Homeownership 5
  • 7. Preserving the Important Government Rolein Secondary Mortgage FinanceA healthy and robust secondary market, homeowners and neighborhoods reinsurance program (option 3 of thewith targeted government assistance for throughout America. Before taking a Treasury report), or some othera ordable housing, is necessary for drastic response to the current crisis, the expanded or new government lending to remain a ordable Coalition believes that we must preserve e key consideration for us is how theand accessible to current and future the bene ts of the government’s Second- plan impacts government support tohomebuyers. Unfortunately, both the ary Market initiatives that have worked underserved communities. If the impactObama Administration and House for America’s neighborhoods and is a net decrease, we will oppose the plan.Republicans have taken an aggressive multicultural homebuyers.stance to unwind the operations of RECOMMENDATIONFannie Mae and Freddie Mac, without Over the last several decades, the GSEsadequate assurance that the needs of established the 30-year xed rate e Coalition believes that:low-income and rst-time homeowners mortgage, the ability for consumers towill continue to be met. ere are some “lock in” a mortgage rate prior to closing, ere must be an orderly transition ofnoticeable di erences in the two propos- and maintained a liquid mortgage market the current portfolio and guaranteedals, but both plans fundamentally signal a in all parts of the country. ese book of business to minimize anyfull retreat of the Federal government innovations have helped homeowners disruption to the mortgage market;from mortgage guarantee programs for a access a stable and predictable nancial ere must not be a net decrease inlarge portion of underserved future instrument that provides the best government housing nance supportAmerican homeowners. ese propos- combination of lower payments and for underserved communities. e lackals, if adopted, would signi cantly equity accumulation. of a speci c proposal by the Adminis-roll-back the progress the diverse tration gives us little assurance in thiscommunities have made in terms of Additionally, the GSEs have traditionally regard, and so it falls short in meetinghomeownership attainment and wealth played an important role in meeting the the needs of the growing multiculturalcreation. e Coalition believes that these a ordable housing needs of America. homebuyer segment;options will damage our community’s With a signi cantly reduced a ordableaccess to a legitimate source of mortgage housing role, we are concerned that the A ordable housing goals must be acredit, and will lead to a two-tiered needed focus on the underserved critical element of the new secondarysystem of mortgage nance for the communities that requires innovation market institutions that have anwell-to-do and everyone else. and stable sources of nancing will be implicit and/or explicit government- unmet for years to come. Government’s guarantee; andWhile we share the goal of bringing role in the secondary mortgage marketprivate capital back into the mortgage should remain strong. As the market With adequate safeguard against excessmarket, we fear these proposals, if stabilizes, it should be primarily focused risk, Government must continue toadopted, will leave behind large pockets on a ordable and underserved markets support the development of newof unmet nancing needs and will as well as other market segments that are products and an innovative approach toultimately come at the expense of the not well served by the private sector. lending, particularly for rst-timemulticultural homebuyers throughout homebuyers and other traditionallythe country. We do not insist on the preservation of underserved communities Fannie Mae and Freddie Mac, but we doCertainly, the public-private nature of the insist that the a ordable housing missiontwo government-sponsored institutions they served continue to be met throughcreated con icting goals and misaligned one or more other mechanisms of theincentives at times. However, the GSEs government. ose other mechanismsdid bring into the mortgage market could include a combination of FHA andtrillions of dollars of capital that helped VA loan guarantees, a government6 Refocusing the Future of Minority Homeownership
  • 8. Protect Consumers and Restore Market Con dence e Consumer Financial Protection Bureau (CFPB) e Consumer Financial Protection RECOMMENDATIONBureau (CFPB) is the new Federalconsumer agency established by the e Coalition strongly believes that theDodd-Frank legislation. e aim of the bureau is a central element of rebuildingbureau is to help protect families by the Nation’s housing and nancial market.ensuring stronger consumer protections A strong and balanced regulator is criticalfrom nancial products and by prevent- to restoring con dence not only toing abusive practices in the nancial consumers, but for investors andindustry. During the passage of the housing-related rms alike. e basicDodd-Frank legislation, this element was trust was lost over the past ve years inone of the most controversial parts of the the housing market. at trust can onlybill. Many stakeholders expressed be restored if everyone believes there isconcerns that the agency will over-reach fairness, transparency and enforcement inits authority and begin sti ing innovation the market. Without that trust in theand commerce. system, multicultural communities will be hesitant to fully re-engage in the market.Starting July of 2011, the CFPB o cially e Coalition is hopeful that the newbegins its operation. Once fully estab- agency will help to reestablish the muchlished, the agency will be one of the largest needed trust and oversight of the nancialconsumer agencies this nation has seen. market. e Coalition rejects the idea thatYet, before the agency even begins to the CFPB must be dismantled or alteredimplement its regulatory responsibilities, before it has an opportunity to help bringsome have already called on the abolish- about thoughtful consumer protectionment of the agency. regulation and market oversight. Refocusing the Future of Minority Homeownership 7
  • 9. Mandatory Homebuyer Education for All First-Time Buyers Financial literacy and access to nancial RECOMMENDATION education are critical for the growth and sustainability of minority homeownership e Coalition strongly recommends that and, subsequently, the material well-being all rst-time homebuyers receive manda- and accumulation of wealth in the U.S. tory education that adequately prepares homeowners for the risks, responsibilities Treasury Deputy Secretary Neal Wolin and rights associated with owning a home. noted recently that, “as America recovers While some may express concern that this from the most severe nancial crisis since mandatory rst-time homebuyer counsel- the Great Depression, it is critical that we ing will add cost to homeownership, we strengthen every aspect of our nancial believe strongly that unsuccessful home- system. at means not only strong ownership pursuits create even larger reforms and consumer protections, but costs to homeowners and neighborhoods also improved nancial literacy and alike. access.” e Coalition seeks to preserve equitable access to homeownership and believes that nancial literacy and the access to adequate tools, skills and an understand- ing of personal nance are especially important to those minority communities that already face indelible barriers to homeownership (e.g. language barriers, lack of traditional credit history and some predatory lending practices).8 Refocusing the Future of Minority Homeownership