Boosting Latino homeownership
Credit union's Raleigh branch joins others in offering loans to low-income clients
Frank Norton, Staff Writer
March 31
The News & Observer
Latino Community Credit Union now provides federally subsidized home loans in Raleigh, its fastest-growing market statewide.
This month, the credit union's Raleigh branch added home lending to the services it offers, the last of the group's five branches to do so, said John Herrera, co-founder and chairman of the Durham-based credit union.
The Raleigh mortgage unit will give thousands more low-income Latinos access to low-cost loans and ultimately help increase homeownership in the Triangle, he said. The credit union's other branches are in Charlotte, Greensboro, Fayetteville and Durham.
While Latinos have made gains in homeownership in recent years, they are still less likely than blacks and whites to own a home, according to the U.S. Census Bureau. About 48.1 percent of Hispanic households owned their home in 2004, compared with 49.1 percent for blacks and and 72.8 percent for whites.
"Our members generally hold lower-paying jobs that don't allow them much extra money to save," Herrera said. "These mortgages help low-income families in North Carolina who certainly are capable of repaying a mortgage, but don't have savings for a down payment to buy a home."
Beside helping local Latinos, boosting homeownership is generally good for the economy, said Luis Pastor, CEO of the credit union. He said nurturing people as they go from the "walking-around-with-cash-in-the-pocket" stage to having saving accounts and loans for cars, homes and small businesses fosters not only consumption but investment among working Latinos. Including home purchases, consumer activity drives about 70 percent of the national economy.
In the past two years, banks and credit unions in North Carolina have introduced new services and marketing campaigns aimed at capturing growing Latino buying power and demand for consumer credit.
Pastor said the credit union is on pace to double its number of home loans statewide this year to 120 just 18 months after launching the program in Durham.
To qualify for a home loan, borrowers must be credit union members, show steady employment and credit worthiness, and present copies of past tax returns. Herrera said almost all of the credit union's members either meet those requirements or will in a year or two.
He said more loans for homes will effectively graduate checking and saving account members to higher-level investment choices that will increase their wealth.
Latino Community loans offer several advantages, such as federally subsidized low interest rates and a waiver on generally standard mortgage insurance requirements for borrowers with less than 20 percent for a down payment.
"That's a lot of value," Herrera said. "We not only don't require mortgage insurance, but there are no hidden fees. What you see is what you get, and this will help more people move into the middle class."
Borrowers who qualify as low-income can receive down payment loans of up to $5,000 through the Federal Home Loan Bank of Atlanta. These loans require no payment for five years and are forgiven after that period if the borrower has remained in the same home. They also help the borrower get a lower interest rate.
For somebody with no money to put down, the $5,000 loan would lower the initial interest rate from 8.25 percent to 7.75 percent. That's a difference of about $500 a year on Latino Community's average loan of $95,000. About 95 percent of Latino Community's members are low income.
All loans are for adjustable-rate mortgages, which adjust every two years, depending on interest rate changes set by the Federal Reserve. The credit union makes loans that finance 90 percent, 95 percent or 100 percent of closing prices.
"Homeownership is still an elusive goal for many low-income families, but it is the best way to build family wealth," Herrera said.