3 Ways Lenders Can Attract More Asian American & Pacific Islander (AAPI) Homebuyers

Chase Gilbert - President at Built

Jim Park, CEO

There are three simple ways lenders can attract more Asian American & Pacific Islander homebuyers. Without much fanfare, Asian American & Pacific Islanders (AAPI) have quietly grown to be the largest minority users of conventional conforming loans in the country over the past 7 years. That growth has been driven primarily by responsible use of credit, strong income growth and larger-than-average down payment when purchasing a home.

Comprising approximately 6% of the US population today (about 23 million), the Asian American & Pacific Islander community has been the fastest-growing minority group over the past 10 years and is expected to continue to grow for years to come. In fact, Asian immigrants represent the largest group arriving in the US for the past 5 years. This is one reason why lenders need to focus on reaching out to Asian American & Pacific Islanders as a key consumer segment.

Unlike the Hispanic community, where similar language creates a key connecting point, the wider Asian community speaks some 2,300 languages. Many lenders have pointed to this wide language variance as the primary challenge in marketing to the AAPI community. However, when you dig a little deeper, the real challenge to Asian homeownership is more than just language: you can point to both AAPI consumers’ perceptions about financing and the antiquated ways our industry looks at the credit histories of AAPI consumers.

Overall, the Asian American & Pacific Islander community has more than recovered the loss of homeownership resulting from the Great Recession and, in certain AAPI subpopulations, we have added substantially to homeownership ranks. In Q2 2020, the AAPI homeownership rate officially exceeded 60%, an all-time high for the community. Breaking this 60% “bamboo ceiling” is a huge milestone, but that achievement is not equally shared within the AAPI community. And, there is a persistent gap between the white homeownership rate and overall AAPI homeownership rate of about 13%, which many researchers say cannot be explained at all based on credit, income and reserves.

So, what can lenders do to help close the Asian American & Pacific Islander community homeownership gap and capture more business?  Here are 3 ways lenders can attract more Asian American & Pacific Islander (AAPI) homebuyers.

 

1. Hire loan officers and underwriters who understand the AAPI community

We hear this a lot, but it’s not always easy to do. Because the AAPI community is quickly moving beyond traditional gateway cities like Los Angeles, New York City and San Francisco, there is limited human capital and infrastructure to serve the growing Asian American & Pacific Islander population in newer housing markets like Birmingham, Jacksonville, and Austin. This is where Human Resources departments can become more creative with recruitment strategies. Consider identifying and recruiting AAPI real estate agents as loan officers or recent college graduates to work in your underwriting and processing departments.

It is critical to have both the language skills and understanding of AAPI borrower nuances to be successful in capturing this business. For example, AAPI loans are more likely to have 3 or more borrowers compared to non-Hispanic whites, due to multigenerational households living under one roof. Understanding these types of particular borrower characteristics could help the lender serve that consumer better and make the underwriting process more seamless.

 

2. It’s not poor credit – It’s no credit

In 2019, Freddie Mac conducted a study of “Mortgage Weak” borrowers as part of Asian Real Estate Association of America’s (AREAA) State of Asia America report. In that study, roughly 800,000 “Mortgage Weak” AAPI applicants were considered to be “credit thin” with clean credit records. Unlike the overall US consumer base, a large majority of Asian American & Pacific Islanders were considered “Mortgage Weak” not because they missed a payment but because they made limited use of traditional credit. They didn’t have bad credit; instead, their credit histories were insufficient to generate a credit score at all. This is a huge opportunity for lenders to tap a market filled with creditworthy consumers through new portfolio products, outreach and credit education.

 

3. Speaking of education – Let’s talk down payment with AAPIs

I mentioned earlier that Asian American & Pacific Islander borrowers tend to put down higher down payments than the overall population. Clearly, higher down payment amounts could help when making a purchase offer in a hot market or looking to get the lowest rate possible. This view is also reinforced by lending practices in AAPI native countries where 30% to 40% down is the norm for getting a loan.

This perception is a double-edged sword. Many times, AAPI homebuyers are delaying purchase of their dream home in order to save up a 20% down payment. And with home appreciation typically outpacing their savings rate, that dream home becomes more of a distant dream every year. Lenders and mortgage insurance companies, like MGIC, could launch an effort to educate AAPI consumers about the true cost and negative consequences of delaying homeownership in order to accumulate that 20% down payment.

For example, Readynest has a great Buy Now vs. Wait calculator to help potential homebuyers make the right decision based on their current financial situation. Lenders can also consider sharing with borrowers MGIC’s 15 > 20 offering to help AAPI borrowers keep more money in their pocket and not spend it on the down payment.

By converting those who have voluntarily sidelined themselves from actively seeking homeownership due to down payment misperceptions, the industry could open doors to a huge number of well-qualified AAPI borrowers immediately. Now, that’s a win-win scenario we can all celebrate.

Jim Park

Jim Park

Co-Founder and CEO – The Mortgage Collaborative & Chair Emeritus – Asian Real Estate Association of America

Jim Park is the co-founder and CEO of the Mortgage Collaborative – an organization that works to make independent mortgage banks and community banks more competitive and profitable. The organization is made up of more than 200 top lenders in United States with an annual origination volume exceeding $250 billion. Park was the Chair of the Asian Real Estate Association of America (AREAA) in 2013 and previously served as the association’s President and CEO from 2005 to 2012. AREAA is currently the largest Asian American and Pacific Islander (AAPI) membership organization in the country today.

Over nearly three decades, Park started several real estate and financial services firms as well as worked at Freddie Mac and FHA. He has dedicated much of his career on policy issues impacting the Asian American community and various affordable lending matters throughout the country.

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