The dream of home ownership is a universal one. For most people, the word "home" encompasses the idea that where they lay their head belongs to them.
This dream might seem unattainable for many immigrants and minorities. This market, coined the "underserved" market, has particular needs that don't fit in the ideal, traditional lending relationship.
For immigrants, establishing themselves with this country's financial standards isn't an easy feat. Obstacles range from their lack of knowledge of the language to being financially illiterate.
But the obstacles don't stop with the potential borrower. Banks and other lenders also have problems of fitting the needs of this growing population. These needs include cultural and language barriers and religious scruples in the communities that they reach out to serve.
The Latino connection
According to a report, conducted by the Tomas Rivera Policy Institute, entitled El Sueno de su Casa: The Homeownership Potential of Mexican-Heritage Families, the Latino market is one of the largest, the wealthiest, and youngest ethnic markets. The growth of the Latino population has coincided with the emergence of the Latino middle class. The annual salary of the Latino household is $40,000--an increase 80% over a 20-year period. But with these advances, the Latino population has the lowest homeownership rates in the country.
Among the financial considerations, according to the report, are the struggle of making a down payment, the question of whether or not they will qualify for a loan, and how to manage the debt of homeownership. Then they have to face the fact that they are often financially illiterate and have no formal relationship with financial institutions.
These obstacles do not dampen the desire of owning a home, however. It's projected that this ethnic group will be the key driver of homeownership in the next decade.
"The marketplace is changing," says Tricia McClung, vice-president of housing and community investment for Freddie Mac. McClung says that the Latino market is 20 points behind non-Latino whites when it comes to homeownership. Freddie Mac has been on the forefront for the last five years of lending to the Latino market.
Their most recent addition is the En Su Casa program, which was developed to teach financial literacy as well as to connect the potential borrower with a lender that will meet their individual needs. The program is also designed to help the homebuyer beyond the lending process by teaching them about the advantages of owning a home, and how to handle unexpected repairs and expenditures.
Lending by faith
Islamic lending is another ethnic financial market that is blossoming. Traditionally, those of the Muslim faith would not enter the lending arena due to their religious teaching. According to the religious law of Shari'aa, Muslims are encouraged not to participate in the practice of renting money at an interest rate, also known as riba.
To help this group obtain credit, several banks have been complying with Islamic law according to Best practices in immigrant lending, a report prepared for the American Bankers Association by ShoreBank Advisory Services. One such bank, Devon Bank of Chicago, created two unique loans, "murabaha"--which is used in home mortgage transactions--and "ijara"--used for short term credit. …