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Special Reports
Emerging Markets
More Attention to Emerging Markets Likely in 2004
By Amilda Dymi
NEW YORK -- Ever since the Bush administration launched its $5.5 billion commitment
to minority homebuyers, the mortgage industry has been paying unprecedented attention to affordable housing and
the so-called emerging markets, a trend expected to "explode" in 2004. But be aware, veterans say, demand
will continue to surpass supply as funds remain scarce and financing becomes more complex.
Heightened interest in the affordable housing marketplace has led lenders to start
local neighborhood branches, along with partnerships with nonprofits and community development organizations in
needy areas throughout the country.
"In the last 15 years it has been steadily growing, but in 2004 I see an
exploding growth of the emerging market. Also new homes are being built on reservations. The Native American Housing
Assistance and Self Determination Act was passed in 1996, but I would say it is just beginning to be implemented,"
said Julie Gould, vice president for community lending at Fannie Mae. "And as the economy improves it will
get even better."
Meanwhile, finding better ways to serve clients with nontraditional credit scores
through good credit history building tools and new legislation remains the biggest challenge inherited from years
past.
"Right now, automating rental payments is the biggest obstacle to building
credit history for minorities and new immigrants, because paying rent is one of the best demonstrations for being
able to pay a mortgage, and yet it's not automated and not part of your credit report," she said. "That
needs to be fixed. The industry needs to come up with a solution."
As the emerging markets are becoming mainstream, the issue may enter many a lender's
agenda.
"To qualify, many first-time homebuyers do not need an excellent credit history,
just a good credit history," she said.
Consequently, in 2004, as banks pay more attention to affordable lending, she
expects lender efforts to also focus on avoiding predatory lending while providing "the lowest cost mortgage."
In addition, lenders are taking advantage of various federally funded programs, as well as the American Dream Downpayment
Assistance Act.
Conrad Egan of the Washington-based, National Housing Conference said, "The
big event will hopefully be the enactment of the homeownership tax credit. That would open up a whole new market
opportunity. But, investors will take awhile to understand and price that credit in relationship to the rental
tax credit."
Like many other industry veterans, Mr. Egan believes affordable housing will continue
to be scarce, due to a widening gap between incomes and housing costs, "permanently and structurally."
"Very tight" funding, he said, will push state and local governments
to increasingly step up to the affordable housing challenge "through such devices as trust funds and tax interventions.
"Additionally, public housing authorities, hobbled by the severe crimp in HOPE VI funding and wavering subsidy
support, will accelerate their use of the debt markets through essential function bonds and related devices,"
he said. "More emphasis will be put on project basing and capitalizing the public housing revenue streams
through various debt instruments."
"Our biggest challenge, given the state of the economy and severe budget
deficits on both the state and city levels, is getting the federal government to do more in the area of affordable
housing," said Maureen Friar, executive director, Supportive Housing Network of New York.
It will be harder to find affordable rental units "since there is a cap on
the level of subsidy provided by some of the government agencies," she said, and there are less sites available
for rehabilitation. So the need for supportive housing, or multifamily rental housing financed by government sources
and nonprofits, which sublet rent units they acquire in the open market to homeless and other special needs tenants,
she explained, "will continue to go up."
Lending to low-income borrowers, Ms. Gould noted, has always been a first-time
homebuyers and purchase money market.
"I've looked at statistics and Fannie's 'My Community Mortgage' fleet of
products, which is what lenders offer to meet their CRA goals, and 97% of our volume in 2003 was generated by first-time
homebuyers or movers, not refinance," she said, explaining that statistics show that minority markets "are
really surging."
Several recent studies have found that homeownership will be the most important
wealth building tool for the low- to moderate-income families. She expects financial education and initiatives
such as "Building Wealth Through Homeownership" launched by the Consumers Federation of America to be
"the biggest thing" in closing the homeownership gap between minorities and non-minorities.
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