A recent Fannie Mae briefing paper showed that the homeownership gap between U.S. native-born and immigrant residents narrowed during the decade of the 2000s. One data point in the analysis should have especially caught any lender's eye: the 18.8 million immigrants who are renters. How many of these are solid mortgage leads? Quite a few, actually.
A deeper dive into the source used by Fannie, the Census Bureau's 2012 American Community Survey, (we are using the five-year estimates here, while Fannie used the one-year estimates) shows the sweet spot for potential homeowners: foreign-born naturalized U.S. citizens. They perform far better than non-naturalized immigrants on all the categories lenders would look at, and in a number of cases, above the national population as a whole.
A lot of naturalized citizens are already homeowners, a good starting point for estimating future successes. In fact, their homeownership rate is 67.4%, which is actually above the national homeownership rate. That leaves 32.6% of this class of 8.5 million housing units, which would be a little more than 2.8 million units occupied by naturalized citizens. (Non-naturalized renters account for about another 5 million rental units.) With an average household of 2.73 people, naturalized renters account for about 7.6 million people.
Median age for these naturalized citizens is 49.6, which is higher than the national average, but keeps this population still in the prime home-buying years, albeit at the higher end.
Are they working? The ACS doesn't drill down as far as giving the employment splits on owner vs. rental, but the overall category numbers are outstanding. Some 62% of naturalized citizens are employed, as opposed to 58.6% for the whole country.
Are they all working in low-paying service jobs, which would make them less attractive candidates for a mortgage? Actually, the biggest percentage of naturalized citizens is in the management category: 38.2%, almost double the 19.6% in service jobs.
Do they make enough money to qualify for a mortgage? Some 80% of employed naturalized citizens make more than $25,000 per year, the ACS data show. Median household income is $58,461, above the national average of $53,046. And just 10.6% of this class is below the poverty level, compared to 14.9% for the total population.
For those that think a college degree is a sign of a successful mortgage applicant, consider this: 20% of naturalized citizens have a bachelor's degree, and 13.5% have an advanced degree. That compares to 17.9% of the population as a whole with bachelor's degrees.
What about marriage as a stabilizing factor and a good selling point for a loan applicant? Married couples make up 64% of naturalized citizen households, well above the 49.2% national estimate.
There are a few categories where naturalized citizens perform worse than the national average. In average size of rental households, their 2.73 people is higher than the 2.48 people for the country as a whole. And they are more cost-burdened, as well. Gross rent makes up less than 30% of rental household income for 49.7% of naturalized citizens, worse than the 51.9% for the entire population.
Most of these numbers are combined rental and homeowner populations, so it may well be the ownership cohorts raise the water level for renters. And not everyone thinks that immigrants will be the foremost driver of household growth in the next decade. Minorities get the nod there. But immigrants will continue to be significant.
"Although their inflows have slowed and their household formation rates have declined, immigrants still account for a substantial share of household growth in the United States. Indeed, immigration has been a major source of population growth in recent decades, contributing about 26% of total increases in the 1990s and 35% in the 2000s," said the annual Harvard Joint Center for Housing Studies' 2014 report on the nation's housing.
"During the Great Recession, however, growth in the foreign-born population weakened as net immigration declined. Household formation rates among the foreign born also fell, brought down by the same difficult economic and housing market conditions that reduced headship rates among the native born. The current Population Survey indicates that the number of foreign-born households actually fell in 2009 and 2010. Since then, however, the foreign-born share of U.S. household growth has rebounded to nearly 40%, helping to buoy housing demand in a period of low overall growth."
There's a strategic point to be made here. Evidence continues to come in that minorities and immigrants represent the biggest pool of possible homebuyers over the next decade. A business that doesn't want to remain a boutique industry catering to the few should pay close attention here.
What is a boutique mortgage industry? The one we have now probably qualifies, as the business has narrowed its underwriting focus, by regulation and by choice, to exclude many possible buyers. Estimates for mortgage volume this year come to just a bit over $1 trillion.That is not a robust industry. The record year of 2003 saw $3.9 trillion in mortgages, but that was not a sustainable volume either. Probably about $2 trillion a year would qualify as a robust industry.
To get there, mortgage lenders are going to have to find ways to get more people into the market for a home loan. Seeking out naturalized citizen renters and turning them into homeowners should prove fertile ground.
Mark Fogarty, Editor at Large at National Mortgage News, brings more than 30 years of sector experience to his analyses of the mortgage market.