Dodd-Frank Hurts Latino and First-Time Home Ownership

According to the California Realtors’ home ownership affordability report, only 28 percent of Los Angeles residents can afford to buy a home in Los Angeles, due to the combination of low inventory and the fact that the Dodd-Frank Consumer Protection Act made it much harder for immigrants and first-time buyers to qualify for a loan.

University of Southern California public policy professor Dowell Myers says the challenge of affordability is even more difficult for immigrants and other first-time buyers to break into the market.

“The unemployment rates are higher, wage growth has been slower, and housing prices have not been falling commensurately,” Myers told KPCC public radio. “And so I think it puts Latinos at a greater disadvantage now, after the recovery, than it did before and during the bubble.”

Between 2000 and 2014, Latinos accounted for 65 percent of the growth in the U.S. labor force. Nearly one million U.S.-born Latinos entered adulthood each year, substantially contributing to U.S. labor force growth.

The State of Hispanic Home Ownership Report for 2014 revealed that Latinos outpaced the 5 percent average gain in home ownership percentage for the decade between 1994 and 2005 by 2 percent. The equaled a 40 percent advantage over the decade.

But many liberals complained that this Latino advantage may actually have been due to predatory sub-prime lenders enticing naïve borrowers, offering easy credit. Liberals complained the practice caused the housing crash that morphed into the subsequent foreclosure crisis.

This concern for the poor and inexperienced being victimized by evil lenders led to the Democrats passing the Dodd–Frank Wall Street Reform and Consumer Protection Act. The legislation was supposedly to restrain the banks from making inappropriate loans to risky buyers who could not pay them back.

But Dodd-Frank included so-called “exemptions” to credit scores that favored the ability of hedge funds to qualify to borrow “institutional funds.” Without the same “exemptions,” immigrants and first-time borrowers had to meet higher credit scores to qualify for loans. U.S. News & World Report observed, “These exemptions are less about protecting unsophisticated borrowers than about protecting the taxpayer-guaranteed business models of favored entities.”

From a high point of 49.7 percent in 2006, Latino home ownership has relentlessly fallen to 45.4 percent at the end of 2014. In 2012 it seemed that the downtrend might be broken, as Latino net homeownership increased by 347,000. But over the last three year the rate fell back, and last year the net ownership by Latinos only increased by 54,000.

Professor Myers suggests that today’s demand for higher credit scores hits those with a short credit history the hardest. “Anybody new to the market has been slowed down,” he said. “That includes all the young people, all the newcomers with short credit histories, everybody. Finally the mortgage lenders are starting to loosen up a little, but it has been pretty bad the last three years.”