2017 AREAA THREE - POINT POLICY PLAN TO BOOST AAPI HOMEOWNERSHIP AREAA POLICY SUMMIT May 15-17, 2017 Washington, DC www.areaa.org
EXECUTIVE SUMMARY The Asian Real Estate Association of America (AREAA) has created this 3-point policy plan outlining issues of vital importance to both the Asian American and Pacific Islander (AAPI) community, and the nation as a whole. Our organization strongly recommends the following actions designed to create a positive investment climate for the economy, reinforce the recent gains in the housing market, and avoid placing unnecessary burdens on potential homebuyers and investors. 1
THREE - POINT POLICY PLAN EDITOR Scott Berman DESIGNER Jazz Miranda COMMITTE MEMBERS Don Choi AREAA Boston Chair Dawn Lin AREAA Houston Vice-Chair Thomas Tay AREAA Aloha Laura Tang AREAA Greater East Bay Cora Holbrook AREAA Boston Marc Weintraub AREAA Greater Tampa Bay Bryan Ahn AREAA Orange County 2
POLICY POINT 1 Student Debt Reform Eliminate the 1% Rule to Help Student Debt Holders Secure Loans In a recent June 2016 study published by the National Association of REALTORS, data show that student debt has adversely affected the ability of homeownership by over 70%. Further, 40% of students with student debt are still dependent on and living with their parents upon graduation. Combine these statistics with a very modest average salary earned by most young millennials, and this creates a situation where it reduces or in some cases eliminates their ability to purchase a home before the age of 30. As of January 2017, all three conventional guidelines have their underwriters using some 3 of calculation of a debt payment structure, despite the student loans being deferred. Guidelines can range from taking 1% of the total student debt, and using that number as an assumed monthly payment when calculating the home borrower s debt to income (DTI) ratio. The issue is there isn t a clear, concise way to properly and fairly account for deferred student loans. Because of the different types of payment methods, and some The issue is there isn t a clear, concise way to properly and fairly account for deferred student loans. Because of the different types of payment methods, and some limited discretionary by the underwriters, it could be the difference between qualifying and not qualifying for a mortgage. limited discretionary by the underwriters, it could be the difference between qualifying and not qualifying for a mortgage. According to the Department of Education, 51% of Pacific Islanders and 38% of Asian Americans received a student loan. In a survey by the National Financial Capability Survey, 25% of AAPIs over the age of 25 said they felt saddled with student debt and that it was a major obstacle to buying a home. Furthermore, in a 2016 study by the US Department of Education and the National Center for Education Statistics, AAPI had the highest percentage increase (20%) of 25-29 year olds that completed a bachelors or higher degree. AAPI have the highest rates of college graduation at both the bachelor s (AAPI: 49%; US Avg: 28%) and postgrad levels (AAPI: 21.2%; US Avg: 10%). With the cost of attending college skyrocketing, more and more young adults will be forced to take out loans to help pay for an education which is supposed to help them earn more money over their lifetime, pay more taxes, and be more productive members of society. The US Department of Education
College Scorecard asserts that on average, college graduates will earn $1 million more over their lifetime than high school graduates. This leads to a conclusion that if given time, and an ability to build wealth through avenues such as homeownership, AAPIs who graduated college with outstanding student debt would have the necessary financial resources to repay their loans. 25% of AAPIs over the age of 25 said they felt saddled with student debt and that it was a major obstacle to buying a home. We re asking members of Congress, HUD, Fannie Mae, Freddie Mac and the FHA to reconsider their current guidelines on student loans that are in the deferment or forbearance state and not assuming any debt payment when applying for a mortgage. QUICK POINTS: 1. The cost of attending college is skyrocketing 2. AAPI over-index on higher education, attending and graduating at higher rates than any other race or ethnicity 3. 25% of AAPI said they felt their student loans were a major obstacle to buying a home 4. When a student loan holder enters a period of deferment or forbearance, it s to give them a chance to build wealth and earn a greater salary without defaulting on their loan. 5. Unpaid principal on deferred loans are simply added to the principal, so no one is losing money. 6. Counting student loans in these statuses unfairly makes it more difficult to purchase a home, which is a key way to build wealth. 7. We need to encourage homeownership and wealth building among young adults, especially those holding degrees; over their lifetime, they are shown to earn significantly more than their nondegree holding counter parts. 8. By eliminating the 1% rule, which has not been clearly laid out to underwriters (and is only a minimum requirement lenders can count a higher percent), we can help spark homeownership in a segment of the population that clearly needs help entering the housing market and building wealth. With the cost of attending college skyrocketing, more and more young adults will be forced to take out loans to help pay for an education which is supposed to help them earn more money over their lifetime, pay more taxes, and be more productive members of society. https://nces.ed.gov/fastfacts/display.asp?id=77 http://www.bankrate.com/finance/mortgages/new-fha-guidelines-make-it-tougher-to-get-mortgage.aspx https://nces.ed.gov/fastfacts/display.asp?id=76 https://nces.ed.gov/fastfacts/display.asp?id=77 4
The use of alternative credit systems, such as VantageScore, could help score as many as 40 million previously unscored consumers, increase scoreability and scores of consumers with low credit or thin credit history by creating a more complete and accurate financial predictor of one s ability to repay a loan, and could lead to better lending options for consumers in general. POLICY POINT 2 Credit Scoring Reform Support the Passage of Bills Pushing for Credit Reform The Asian Real Estate Association of America (AREAA) has long fought for Credit Scoring Reform. Currently there are multiple bills at some stage in the legislative process addressing this issue, with two in particular standing above the rest. The first is House Resolution 123 (HR123), which has been introduced by Rep. Al Green (D- TX-9) and has subsequently been referred to the House Committee on Financial Services. The bill 5 would establish an automated process for providing alternative credit rating information for mortgagors and prospective mortgagors under certain mortgages. The second bill is House Resolution 898 (HR898), a bipartisan proposition introduced by Rep. Ed Royce (R-CA-39), Kyrsten Sinema (D-AZ-9), and Terri Sewell (D-AL-7), would require Fannie Mae and Freddie Mac to establish procedures for considering certain credit scores in making a determination whether to purchase a residential mortgage, and for other purposes. Credit scores are the main determinant in a person s ability to secure a mortgage. A credit score is a rating of a person s ability to repay a loan, based on their history of debt repayment. Generally, credit scores are calculated by examining a person s Payment History, Amounts Owed, Length of Credit History, Credit Mix in Use, and New Credit. Payment History is perhaps the most influential factor in calculating a score. Payment history is driven by factors such credit card accounts, retail accounts, installment loans (such as a car or student loan), finance company accounts, and mortgage loans. Items such as rent, utilities, insurance and medical payments have traditionally not counted, despite being clear indicators of
a person s ability to repay a debt in a timely fashion. Nearly 70% of Asian Americans and Pacific Islanders over the age of 18 are foreign born, and many come from cultures that promote the value of debt aversion, an unwillingness to take on debt with a premium placed on paying for things outright. This can lead to many in the community having thin credit or even no credit whatsoever, despite paying for items such as rent, insurance, medical bills, and utilities. Under the proposed legislation, many AAPI could become scoreable and increase their credit profiles, thus leading to more AAPI being able to apply for and receive a mortgage. The use of alternative credit systems, such as VantageScore, could help score as many as 40 million previously unscored consumers, increase scoreability and scores of consumers with low credit or thin credit history by creating a more complete and accurate financial predictor of one s ability to repay a loan, and could lead to better lending options for consumers in general. The Asian Real Estate Association of America puts its full support behind the passage of this bill. Generally, credit scores are calculated by examining a person s Payment History, Amounts Owed, Length of Credit History, Credit Mix in Use, and New Credit. QUICK POINTS: 1. Many AAPI come from backgrounds that do not place value on carrying debt of any kind 2. Therefore, despite earning sizeable incomes or having nontraditional methods of proving a repayment of debt (such as rent, utilities, etc.), a disproportionate segment of AAPI are unable to be accurately scored using traditional credit scoring methods. 3. These bills create an avenue lenders can use to score these non-traditional applicants, in a way that has been proven to be as accurate a predictor of a person s ability to repay their loan as other models. 4. This would only apply when an applicant could not be accurately scored, or in some cases, could not be scored at all. 5. According to VantageScore analysis, as many as 300,000 AAPI would have credit scores worthy of home loans using these alternative standards. Items such as rent, utilities, insurance and medical payments have traditionally not counted, despite being clear indicators of a person s ability to repay a debt in a timely fashion. http://www.urban.org/urban-wire/six-things-might-surprise-you-about-alternative-credit-scores 6
POLICY POINT 3 Language Access Reform Plan Preferred Language Data Fields (PLDF) in the Redesigned Uniform Residential Loan Application (URLA); Support Efforts to Increase Language Access in Real Estate Transaction Documents The URLA is required by Fannie Mae and Freddie Mac for homebuyers applying for a mortgage on a single family residence (SFR). It is also required by the Federal Housing Administration (FHA), Veterans Administration (VA), and the U.S. Department of Agriculture s (USDA s) Rural Housing Service. Thus, its presence in the real estate industry is integral and broadly felt. Last year, Fannie Mae and Freddie Mac published a proposed redesigned Uniform Residential Loan Application (URLA) along with a corresponding Uniform Loan Application Dataset (ULAD). Part of the change was the addition of a Preferred Language Data Field. The redesign has been a multi-year undertaking and represents a unique opportunity to increase language access for Limited English Proficient Speakers (LEPS) an opportunity that might not be seen again for many years. Many of the objections surrounding the inclusion of PLDFs revolve around a perceived obligation it creates on lending institutions to then create broad range of information in the applicant s selected language. However, as part of the redesign, a disclaimer is to be included notifying applicants that just because they select a language does not guarantee production of these documents by the lending institution. Many institutions currently offer Spanish language information; however, very few have provided such information in Asian language. AREAA believes that if the marketing is performed in language then the application process should also be offered in language as well. Homeownership is fundamental to the health and growth of communities. Knowing what languages potential homeowners prefer helps local lending institutions and relevant government agencies such as FHFA and CFPB better understanding the evolving dynamics our local populations and housing potential. While it is true that the Census Department collects information on languages spoken, that does not necessarily correlate with who is looking to purchase a home. Having a PLDF on URLA is the absolute most effective way to collect this information. Asian Americans and Pacific Islanders are the fastest growing segment of the US population, and are projected to remain so at least through 2050, when the population will have grown by another 134%. A majority of AAPI are LEPS, with nearly 70% over the age of 18 being foreignborn, and 80% being in-language preferred. Despite this, since 2010, AAPI are the largest minority participant in the purchase The redesign has been a multi-year undertaking and represents a unique opportunity to increase language access for Limited English Proficient Speakers (LEPS) an opportunity that might not be seen again for many years. money mortgage market, having applied for and received over two (2) million loans worth more than $600B USD amounts that are more than African Americans and Hispanics combined. 7
This action will help grow homeownership rates in the AAPI community, which still lags far behind non-hispanic Whites despite having the highest education and income rates amongst any population, high credit scores, and low debt to income ratios. We encourage our Congressional representatives to express their support of including the proposed PLDF on the URLA to the FHFA. QUICK POINTS: 1. Many lenders market extensively to Asian American population in language; however very few lenders provide in language documentation once the potential consumers moves forward with obtaining a loan. 2. Asking for an applicant s preferred language on the URLA is the easiest way to compile language access data used to give agencies such as HUD and FHFA a better understanding of evolving local dynamics and housing potential. 3. Nearly 80% of the AAPI would prefer in-language financial materials these are major financial decisions and having to navigate the complexities of these documents in a nonnative language can be daunting and a major deterrent for those who would otherwise be able to purchase a home. https://www.whitehouse.gov/sites/default/files/docs/infographic_1.pdf Courchane, M., Gailey, A., & Darolia, R. (2014, July 22). Borrowers from a Different Shore: Asian American Outcomes in the US Mortgage Market 8
ABOUT AREAA Founded in 2003, the Asian Real Estate Association of America (AREAA) is a national professional trade organization dedicated to promoting sustainable homeownership opportunities in Asian American communities by creating a powerful national voice for the housing and real estate professionals that serve this dynamic market. AREAA will accomplish this mission by: Advocating for policy positions at the national level that will reduce homeownership barriers facing the Asian American community. Increasing business opportunities for mortgage and real estate professionals that serve this growing community. Who We Are AREAA s membership represents a broad array of real estate, mortgage and housing-related professionals that serve the diverse Asian American market. With members that serve nearly all segments of the Asian American population, AREAA is the only trade association dedicated to representing the interests of the Asian real estate market nationwide. Currently, the association serves over 15,000 members in 17 states and Canada with 35 affiliate chapters. Expanding Homeownership Opportunities and Supporting Business Growth EAA pursues initiatives that will expand homeownership opportunities for more Asian and immigrant families, increase business opportunities for our members, and deliver tangible results for our national partners. Over the next two decades, Asian Americans will be one of the fastest growing populations in the country. Because most Asian Americans are largely first generation Americans, they face significant language, cultural and knowledge barriers which have kept the homeownership rate relatively unchanged over the past two decades. AREAA will initiate national and regional efforts to address these challenges. 9
GET INVOLVED Help us in our fight to increase AAPI homeownership and empower those who serve this dynamic market. With 36 chapters across the US and Canada, plus a National Chapter, it is easy to get involved with an AREAA chapter near you. To connect with a local chapter, or find out which one you should join, visit www.areaa.org or call the National Office at 619-795-7873 Local Chapters Aloha Hawaii Atlanta Metro Austin Boise Boston Central Florida Central New Jersey Central Valley Chicago Dallas/FW DC Metro Denver East Bay Houston Inland Empire Las Vegas Los Angeles Miami New York East New York Manhattan Northern New Jersey Orange County Phoenix Portland Sacramento San Diego San Fernando Valley Seattle SF Peninsula Silicon Valley South Bay Tampa Bay Toronto Tri-County Twin-Cities Vancouver 10
GET TO KNOW AREAA 15,000 Members and Growing 37 Chapters Across US and Canada 51 Ethnicities Represented 26 Languages Spoken 2 Major National Events Per Year Policy Summit in DC Each May Multiple Trade Missions to Asia Each Year Find Out What We re Doing Next areaa.org