Hispanic Home Borrowers Losing to Whites in California

Jose Ramos lived the American Dream as a real estate agent who owned two houses in the majority Hispanic city of Santa Ana, California. Almost a decade later, homeownership for the 48-year-old Mexican immigrant is out of reach.

Ramos said the housing crash in 2007 wiped out his income and he lost both homes to foreclosure. Since then, mortgage standards have tightened, and he can’t afford to buy in his neighborhood because investors have bid up prices to almost pre-bust levels.

“The interest rates are low, but the prices are so high,” Ramos said during an interview in the two-bedroom apartment he shares with his wife and three daughters. “Where’s the opportunity?”

Hispanic borrowers like Ramos have been shut out of the two-year housing recovery more than other groups in California, denying them the chance to rebuild wealth through homeownership. The Hispanic share of the market for mortgages to buy homes fell to 22 percent in 2013 from 24 percent the prior year and barely half of the 2006 peak, according to an analysis of federal lending data by the Urban Institute, a Washington-based non-partisan research group. The share last year for blacks fell to 2.8 percent from 3.1 percent while it increased for whites and Asians.

More Hispanics are dropping out of the market even as their numbers grow, surpassing whites this year as the largest ethnic group in California, accounting for 39 percent of the population, according to the state demographer.

Accruing Wealth

“The Hispanic community is going to make up a larger and larger portion of the population,” said Taz George, an Urban Institute researcher. “If they’re struggling to qualify for loans or to afford home purchases, that has huge implications for their ability to accrue wealth over time.”

The narrowing of economic opportunity for Hispanics in California, who had a 9.2 percent unemployment rate in August, may become a political issue. The group’s growing influence and tilt toward Democrats has made it hard for Republicans to win statewide office, said Mark Baldassare, chief executive officer of the Public Policy Institute of California, a non-partisan group.

“Economic opportunity and mobility are major issues in California,” Baldassare said. “These are some of the driving factors in why people participate in elections, particularly when they feel like they’ve been left behind.”

Homeownership Rate

Homeownership continues to be a significant source of wealth in the aftermath of the housing crisis, according to a September 2013 study by Harvard University’s Joint Center for Housing Studies. Owning a home is consistently linked with increases of as much as $10,000 in net wealth for each year a home is owned, the study said. In contrast, renters generally don’t experience any wealth gains.

The California homeownership rate for Hispanics was 41.9 percent last year, compared with 62.7 percent for non-Hispanic whites, according to the U.S. Census. The Hispanic rate was 47.9 percent in 2006.

The challenge for Hispanics is even greater in California, which is among the nation’s most expensive states for housing. The median price of a single-family home was $480,280 in August, up 8.9 percent from a year earlier, according to the California Association of Realtors. The U.S. median-priced home was $219,800 in August, the National Association of Realtors reported last week.

San Francisco

In Los Angeles, prices rose 9 percent in July compared with a year earlier, according to the S&P/Case-Shiller 20-city index released today. That compares with a 10.6 percent jump in June.

The affordability squeeze is most acute in big cities where high-paying jobs have been created during the recovery, driving up housing prices. In the San Francisco Bay area, near the Google Inc. and Facebook Inc. headquarters, the Hispanic share of purchase originations fell to 9 percent last year from 25 percent in 2006, according to the Urban Institute analysis.

The portion for Asians grew to 35 percent from 26 percent in the same period. Whites jumped to 53 percent from 41 percent. In the Los Angeles area, which includes Santa Ana, the Hispanic share dropped to 23 percent last year from 46 percent in 2006.

“The recovery itself might be further exacerbating the racial disparities in wealth because the people recovering are more likely to be white and the people scraping by are more likely to be black and Hispanic,” said Matt Barreto, co-founder of the national polling and research firm, Latino Decisions. “Where there are opportunities, those loans are being taken up by people already in the middle and upper class.”

Ramos invested in his first house in 1999, a $209,000 duplex at 1052 W. Camile St. in the Los Angeles suburb of Santa Ana, according to public records. In 2004, he bought the house two doors away at 1042 W. Camile for $370,000.

Foreclosures Surge

Prices in his ZIP code peaked at a median $604,000 in July 2006, according to real estate information service Corelogic DataQuick. They plunged 60 percent to $240,000 in January 2010 and climbed back to $402,500 as of August.

Easy financing helped people like Ramos acquire homes they couldn’t afford and cash out their equity to take on more debt. When the credit stopped and prices plunged, they lost their property. At least 13 of the 47 homes on Ramos’s block of Camile Street went through foreclosure or sold for a loss since 2007.

Public records show Ramos lost 1042 W. Camile to foreclosure in January 2009 after loading up with at least $437,100 in adjustable-rate loans. He lost the house at 1052 W. Camile in June 2010 with $520,000 in debt. In August 2013, he filed for personal bankruptcy.

“Bankruptcy is really hard.” he said, sitting on his apartment couch as twilight descended. “Some people” -- he pointed his finger like a gun to his head -- “Pow!”

Tighter Credit

After losing their homes, Californians in particular are struggling to reenter the market as prices soar. In the second quarter, only 30 percent of California households earned enough to qualify for a mortgage on a median-priced single-family home, down from 36 percent a year earlier, according to the California Association of Realtors. The U.S. average affordability rate was 57 percent.

Lenders’ requirements of higher credit scores after the housing bubble burst have also reduced the mortgage flow. Tighter credit excluded as many as 1.2 million Americans from buying in 2012 who would have qualified under the pre-bubble standards, Urban Institute’s George said.

“The pendulum has swung too far,” George said.

Credit has been least accessible in hard-hit communities like Santa Ana. Last year, lenders closed only 16 purchase mortgages in Camile Street’s census tract, according to the Urban Institute analysis. There were 123 purchase mortgages in 2005 and 112 in 2006, the peak selling years. More than 80 percent of the area’s borrowers since 2001 were Hispanic.

Wake-Up Call

“I call it a wake-up call,” Gary Acosta, chief executive officer of the National Association of Hispanic Real Estate Professionals, a national trade association based in San Diego, said of the Urban Institute analysis. “A lot of people Barack Obama owes his second term to are part of the Hispanic voting block. This contingent is going to be important politically as well as economically. Policymakers who are attentive to this issue should be rewarded.”

Many of the new owners in Santa Ana are absentee investors who paid cash, according to Orange County records. Nationwide, cash purchases made up 38 percent of home sales in the second quarter, down from a record high of 42 percent in the first quarter, research firm RealtyTrac reported last month.

U.S. Representative Mark Takano, a Democrat representing a majority Hispanic district in California’s Riverside County, east of Los Angeles, said he’s worried about the number of homes in his neighborhoods that are owned by investors instead of families who have a stake in the community.

Political Issue

“Latinos represent California’s future middle class and there is a political issue here and it is an issue for the Latino community to rally behind: Better policies and opportunities to encourage homeownership,” Takano said.

Julian Castro, a descendant of Mexican immigrants who became the Secretary of Housing and Urban Development in July, has said the Federal Housing Administration is working with lenders to ease credit by making it clearer when they’ll have to absorb the costs of soured loans.

Castro will deliver remarks tomorrow at the Congressional Hispanic Caucus Institute session titled “Rebuilding the Minority Middle Class.”

“It’s time to remove the stigma associated with promoting homeownership,” Castro said during a Sept. 16 speech to the Bipartisan Policy Center forum in Washington. “When done responsibly, it strengthens communities and boosts our economy.”

Loosening standards would be risky for low-income borrowers who face challenges if the housing market crashes again, according to Edward Pinto, a resident fellow at the American Enterprise Institute in Washington. They’re now better off waiting for values to drop before purchasing because prices have gotten so high in California, he said.

Risky Loans

“These calls for looser lending are really putting these individuals who tend to be lower income and minority in harm’s way,” Pinto said.

Ramos, the former homeowner, now earns most of his income managing 30 apartments, which are a five-minute walk from Camile Street. His family lives in a unit provided by his employer. Ramos also sells exercise equipment and continues to try to deal houses.

His clients have closed on five homes this year, mostly properties in Riverside County towns like Corona, Moreno Valley and Perris, where the prices are lower and the driving commute to jobs in Santa Ana can stretch two-hours in each direction.

“If I buy, it won’t be here in Santa Ana,” Ramos said.

An investor bought 1042 W. Camile for $182,000 in 2009, less than half what Ramos paid in 2004, according to public records. It sold again in January 2013 for $238,500 to Russell Ghorishy, an engineer and business consultant from Newport Beach, California, who owns three rental homes that went through foreclosure.

“I should’ve bought more,” Ghorishy said.

Camile Street

Ghorishy, an immigrant from Iran, took his two children to Camile Street to show them how the other half lives.

“I want to make sure they don’t take for granted what they have,” he said.

Ramos took his children to Tijuana, Mexico, to show them they had a lot to be thankful for, even after the family’s financial setbacks.

His oldest son, Manuel, is a senior at University of California at Riverside, majoring in economics and finance. Manuel said he learned a lot about real estate from his family’s experience and by working with his father on deals.

“The majority of our clients are Hispanic and they want to buy a house but it’s so difficult,” Manuel, 21, said during an interview in the apartment living room. “In reality, it’s the American dream to own. You don’t want to live in an apartment the rest of your life.”

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