"The face of America is changing, and the housing market is changing along with it. If the mortgage market doesn't keep up, the nation's economy will bear the consequences."  That flat statement introduces an article by three housing experts that appeared recently in the Washington Post.  Gary Acosta is co-founder and chief executive officer of the National Association of Hispanic Real Estate Professionals. Jim Parrott is a nonresident fellow at the Urban Institute, and Mark Zandi is chief economist at Moody's Analytics.  

The three point out that by 2045 more than half of the U.S. population will be persons of color, and they will be responsible for an overwhelming amount of housing demand, particularly as first-time buyers. Hispanic Americans are expected to form more than half of new households in the country over the next quarter century.

The mortgage market hwever has a long history of underservice to these communities.  Unless this improves they say, "what has long been a moral problem will eventually become a broader economic one."  This shift will obviously have a particularly dramatic impact in places like California and Texas but will be felt throughout the country.

Focusing on the Hispanic community, the authors say there are several ways in which mortgage lending does not account for their cultural patterns which can make it difficult for them to qualify for a loan.  For example, their households are often composed of extended family, many of whom contribute financially to the household.  Underwriting rules however typically consider only the income of those named on the mortgage.  Self-employment is prevalent, a hurdle in an underwriting system looking for a regular paycheck from a full-time employer.  There is also a tendency to use cash more than credit, which further disadvantages Hispanics in a system relying heavily on credit history.

This disconnect between the way many Hispanic households manage their finances and how underwriting expects they will lead to incorrectly assessing the credit risk of many Hispanic homebuyers. The authors maintain this is one reason only 47 percent of Hispanics own a home, compared with the non-Hispanic homeownership rate of almost 68 percent.

Homeownership has traditionally been a primary means for Americans to build wealth and to move into the middle class and many Hispanics are missing out on homeownership and its wealth-building and social mobility aspects.  According to a 2017 Federal Reserve report, the median net worth of a homeowner is 44 times that of a renter.

If the mortgage market doesn't figure out a way to better serve the Hispanic community the nation as a whole will suffer the economic consequences. If homeownership rates across ethnic groups were to remain what they are today, (and black homeownership is even lower than that of Hispanics) then over the next 40 years the national homeownership rate would decline to a rate not seen since the years following World War II.

In turn, the broader economic and social benefits of homeownership would decline.  We would see less labor force participation, less productivity and a decline in the social and economic investment homeowners make in their homes and community. In addition, this would be a lost opportunity. 

The Hispanic community is a significant and growing driver of the economy. While the number of businesses in the United States declined following the financial crisis, Latino-owned businesses grew by nearly 50 percent, creating millions of additional jobs and billions of dollars in economic activity.

The authors say they aren't advocating loosening lending standards to allow borrowing by those not prepared to be homeowners.  Rather they suggest broadening the assessment of credit risk, using more and different variables and relying less on the household economics of the average homebuying family two decades ago, "with one generation in the house, one full-time employer and a host of credit cards used to pay the bills."

This means the agencies that define the underwriting regime must make it easier for lenders to include more sources of income and more ways of paying bills in their credit assessment.  The authors admit this is no small task. "But only then will the mortgage market be able to evolve along with the nation it is to serve."