Hispanic Borrowers Diminishing in California Housing

Jose Ramos lived the American dream as a real estate agent who owned two houses in the majority Hispanic city of Santa Ana, Calif. 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% in 2013 from 24% 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% from 3.1% 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% of the population, according to the state demographer.

"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% 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 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% last year, compared with 62.7% for non-Hispanic whites, according to the U.S. Census. The Hispanic rate was 47.9% 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% 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.

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% last year from 25% in 2006, according to the Urban Institute analysis.

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

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% 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.

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

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% of the area's borrowers since 2001 were Hispanic.

"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 bloc. This contingent is going to be important politically as well as economically. Policymakers who are attentive to this issue should be rewarded."

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