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Automation to Increase Hispanic Homeownership

By Scott Kersnar, Editor, Mortgage Technology Magazine

Leveraging a highly customized automated underwriting system, the Hispanic National Mortgage Association has entered into a joint venture, HNMA Funding, to create a new national correspondent lending operation to purchase low-downpayment mortgages made to Hispanics and other immigrant borrowers.

Headquartered in San Diego, HNMA Funding is jointly owned and capitalized by HNMA and Deutsche Bank, with the mission of providing the liquidity to help correspondent lenders offer these underserved borrowers competitive interest rates "that will be significantly lower than the subprime rates that a large portion of Hispanic borrowers have historically been offered."

According to the announcement, the new entity has already begun purchasing closed loans from mortgage lenders, community banks and credit unions across the country on a mini-bulk or bulk basis. Deutsche Bank and HNMA Funding plan to participate jointly in the purchase, securitization and sale of these mortgages in the secondary market. HNMA Funding will also retain credit risk and invest in residual pieces of mortgage-backed securities.

"We have been working with the mortgage and capital markets to increase their understanding of the size and diversity of our market and the financial needs and the behavior of the Hispanic and immigrant borrowers," said Leonardo Simpser, CEO of HNMA Funding.

"By creating a new liquidity vehicle for mainstream lenders, we are addressing one of the major impediments to Hispanic homeownership, demonstrating our commitment to this market and our willingness to accept and retain credit risk.

"We are trying to close the homeownership gap with a multipronged strategy," Mr. Simpser noted. "We think the combination of liquidity, efficiency and decisioning capability is what counts."

U.S. Census data quoted by HNMA Funding shows that Hispanic homeownership rates have lagged behind national averages, even though Hispanics accounted for 34% of U.S. household growth from 1995 to 2005.

"Only a small portion of the disparity in homeownership rates can be explained by income differences," Mr. Simpser said. "There are a large number of working, taxpaying heads of households who have the savings, income and history to become first-time homeowners and mortgage recipients."

He said the market HNMA Financial is going after has three segments: prospective borrowers with a tax ID number but no Social Security number, people with a Social Security number but no FICO score, and people with a credit score based on thin-file information that underestimates their true creditworthiness.

What HNMA can do for its typical target borrowers, Mr. Simpser explained, is enable them to get loans at 8.5% instead of having to settle for subprime loans at 12%. He said HNMA shies away from exotics to provide "vanilla product for the hard-to-fit borrower" by offering only a 30-year fixed loan and a 5/1 ARM.

The biggest problem for originators has been the labor-intensive task of assembling and giving underwriting weight to nonstandard evidence of creditworthiness for Hispanic and immigrant borrowers.

In November, HNMA launched at the Mortgage Bankers Association's Residential Underwriting Conference in San Antonio its HAUS automated underwriting system, a highly customized version of a system provided by Overture Technologies, as the first AU system calibrated to make credit decisions using the nontraditional characteristics prevalent in Hispanic and other immigrant communities.

HNMA Funding extends delegated underwriting privileges to lenders using HAUS. Application information can be entered manually or uploaded from LOS systems and run through HAUS for an instant decision. HMNA said it typically takes half of a day to train new users on the HAUS system.

HNMA is a pioneer in a larger trend. In recent years, Fair Isaac and First American have come to the fore with nontraditional credit-measurement tools that take into account rental history, utility payments, rent-to-own purchases and other indicators of creditworthiness other than credit lines, car loans and other traditional measures used by the three major credit-reporting agencies.

Another measure of financial responsibility now being recognized is remittances sent by migrant workers back to relatives in their homelands. According to a report released in October by the Inter-American Development Bank, Latin American migrants working in the U.S. will send around $45 billion to their homelands this year, up from some $30 billion in 2004.

Surveys for the report showed that some 12.6 million (73% of all adult Latin Americans living in the U.S.) regularly send money home, on average about 10% of their earnings. The report is based on a survey commissioned by the IDB's Multilateral Investment Fund and conducted among 2,511 adults born in Latin America and working in the U.S.

In addition to HNMA Funding, HNMA has a Hispanic-centric retail lending operation, Ilumina Mortgage, as a joint venture with Wells Fargo Home Mortgage.

HNMA's R&D unit develops tools to measure Hispanic and other nontraditional borrower's creditworthiness more accurately and more efficiently.

-- Lew Sichelman contributed to this story.