*Note: This is just an informal document outlining our plan so you can become familiar with our
positions. A designed and printed Plan will be given out on-site in Washington DC.
Policy Point 1: Student Debt Reform
Eliminate the 1% Rule to Help Student Debt Holders Secure Loans
In a recent June 2016 study published by the National Association of REALTORS®, data show that
student debt has adversely affected the ability of homeownership by over 70%. Further, 40% of students
with student debt are still dependent on and living with their parents upon graduation. Combine these
statistics with a very modest average salary earned by most young millennials1, and this creates a
situation where it reduces or in some cases eliminates their ability to purchase a home before the age of
30.
As of January 2017, all three conventional guidelines have their underwriters using some of calculation
of a debt payment structure, despite the student loans being deferred. Guidelines can range from taking
1% of the total student debt, and using that number as an assumed monthly payment when calculating
the home borrower’s debt to income (DTI) ratio2. The issue is there isn’t a clear, concise way to
properly and fairly account for deferred student loans. Because of the different types of payment
methods, and some limited discretionary by the underwriters, it could be the difference between
qualifying and not qualifying for a mortgage.
According to the Department of Education, 51% of Pacific Islanders and 38% of Asian Americans
received a student loan. In a survey by the National Financial Capability Survey, 25% of AAPIs over the
age of 25 said they felt saddled with student debt and that it was a major obstacle to buying a home.
Furthermore, in a 2016 study by the US Department of Education and the National Center for Education
Statistics, AAPI had the highest percentage increase (20%) of 25 -29 year olds that completed a
bachelors or higher degree. AAPI have the highest rates of college graduation at both the bachelor’s
(AAPI: 49%; US Avg: 28%) and post-grad levels (AAPI: 21.2%; US Avg: 10%).
With the cost of attending college skyrocketing3, more and more young adults will be forced to take
out loans to help pay for an education which is supposed to help them earn more money over their
lifetime, pay more taxes, and be more productive members of society. The US Department of
Education College Scorecard asserts that on average, “college graduates will earn $1 million more over
their lifetime than high school graduates.4” This leads to a conclusion that if given time, and an ability to
build wealth through avenues such as homeownership, AAPIs who graduated college with outstanding
student debt would have the necessary financial resources to repay their loans.
1
https://nces.ed.gov/fastfacts/display.asp?id=77
http://www.bankrate.com/finance/mortgages/new-fha-guidelines-make-it-tougher-to-get-mortgage.aspx
3
https://nces.ed.gov/fastfacts/display.asp?id=76
4
https://nces.ed.gov/fastfacts/display.asp?id=77
2
We’re asking members of Congress, HUD, Fannie Mae, Freddie Mac and the FHA to reconsider their
current guidelines on student loans that are in the deferment or forbearance state and not assuming
any debt payment when applying for a mortgage.
QUICK POINTS:
1. The cost of attending college is skyrocketing
2. AAPI over-index on higher education, attending and graduating at higher rates than any other race
or ethnicity
3. 25% of AAPI said they felt their student loans were a major obstacle to buying a home
4. When a student loan holder enters a period of deferment or forbearance, it’s to give them a chance
to build wealth and earn a greater salary without defaulting on their loan.
5. Unpaid principal on deferred loans are simply added to the principal, so no one is losing money.
6. Counting student loans in these statuses unfairly makes it more difficult to purchase a home, which
is a key way to build wealth.
7. We need to encourage homeownership and wealth building among young adults, especially those
holding degrees; over their lifetime, they are shown to earn significantly more than their non-degree
holding counter parts.
8. By eliminating the 1% rule, which has not been clearly laid out to underwriters (and is only a
minimum requirement – lenders can count a higher percent), we can help spark homeownership in a
segment of the population that clearly needs help entering the housing market and building wealth.
Policy Point 2: Credit Scoring Reform
Support the Passage of Bills Pushing for Credit Reform
The Asian Real Estate Association of America (AREAA) has long fought for Credit Scoring Reform.
Currently there are multiple bills at some stage in the legislative process addressing this issue, with two
in particular standing above the rest.
The first is House Resolution 123 (HR123), which has been introduced by Rep. Al Green (D-TX-9)
and has subsequently been referred to the House Committee on Financial Services. The bill would
establish an automated process for providing alternative credit rating information for mortgagors and
prospective mortgagors under certain mortgages.5
The second bill is House Resolution 898 (HR898), a bi-partisan proposition introduced by Rep. Ed
Royce (R-CA-39), Kyrsten Sinema (D-AZ-9), and Terri Sewell (D-AL-7), would require Fannie Mae and
Freddie Mac to establish procedures for considering certain credit scores in making a determination
whether to purchase a residential mortgage, and for other purposes.
Credit scores are the main determinant in a person’s ability to secure a mortgage. A credit score
is a rating of a person’s ability to repay a loan, based on their history of debt repayment. Generally,
credit scores are calculated by examining a person’s Payment History, Amounts Owed, Length of
Credit History, Credit Mix in Use, and New Credit.6 Payment History is perhaps the most influential
factor in calculating a score. Payment history is driven by factors such credit card accounts, retail
accounts, installment loans (such as a car or student loan), finance company accounts, and mortgage
loans. Items such as rent, utilities, insurance and medical payments have traditionally not counted,
despite being clear indicators of a person’s ability to repay a debt in a timely fashion.
Nearly 70% of Asian Americans and Pacific Islanders over the age of 18 are foreign born7, and
many come from cultures that promote the value of “debt aversion,” an unwillingness to take on debt
with a premium placed on paying for things outright.8 This can lead to many in the community having
thin credit or even no credit whatsoever, despite paying for items such as rent, insurance, medical bills,
and utilities.9 Under the proposed legislation, many AAPI could become scoreable and increase their
credit profiles, thus leading to more AAPI being able to apply for and receive a mortgage.
The use of alternative credit systems, such as VantageScore, could help score as many as 40
million previously unscored consumers, increase scoreability and scores of consumers with low credit
or thin credit history by creating a more complete and accurate financial predictor of one’s ability to
5
https://www.congress.gov/bill/115th-congress/house-bill/123/text
http://www.myfico.com/credit-education/credit-payment-history/
7
https://obamawhitehouse.archives.gov/administration/eop/aapi/data/critical-issues
8
http://www.pewsocialtrends.org/2012/06/19/the-rise-of-asian-americans/
9
https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201612_cfpb_credit_invisible_policy_report.
pdf
6
repay a loan, and could lead to better lending options for consumers in general.10 The Asian Real
Estate Association of America puts its full support behind the passage of this bill.
QUICK POINTS:
1. Many AAPI come from backgrounds that do not place value on carrying debt of any kind
2. Therefore, despite earning sizeable incomes or having non-traditional methods of proving a
repayment of debt (such as rent, utilities, etc.), a disproportionate segment of AAPI are unable to be
accurately scored using traditional credit scoring methods.
3. These bills create an avenue lenders can use to score these “non-traditional” applicants, in a way
that has been proven to be as accurate a predictor of a person’s ability to repay their loan as other
models.
4. This would only apply when an applicant could not be accurately scored, or in some cases, could not
be scored at all.
5. According to VantageScore analysis, as many as 300,000 AAPI would have credit scores worthy of
home loans using these alternative standards.
10
http://www.urban.org/urban-wire/six-things-might-surprise-you-about-alternative-credit-scores
Policy Point 3: Language Access Reform Plan
Support Efforts to Increase Language Access in Real Estate Transaction Documents
The URLA is required by Fannie Mae and Freddie Mac for homebuyers applying for a mortgage
on a single family residence (SFR). It is also required by the Federal Housing Administration (FHA),
Veterans Administration (VA), and the U.S. Department of Agriculture’s (USDA’s) Rural Housing Service.
Thus, its presence in the real estate industry is integral and broadly felt.
Last year, Fannie Mae and Freddie Mac published a proposed redesigned Uniform Residential
Loan Application (URLA) along with a corresponding Uniform Loan Application Dataset (ULAD). Part of
the change was the addition of a Preferred Language Data Field. The redesign has been a multi-year
undertaking and represents a unique opportunity to increase language access for Limited English
Proficient Speakers (LEPS) – an opportunity that might not be seen again for many years.
Many of the objections surrounding the inclusion of PLDFs revolve around a perceived
obligation it creates on lending institutions to then create broad range of information in the applicant’s
selected language. However, as part of the redesign, a disclaimer is to be included notifying applicants
that just because they select a language does not guarantee production of these documents by the
lending institution. Many institutions currently offer Spanish language information; however, very few
have provided such information in Asian language. AREAA believes that if the marketing is performed in
language then the application process should also be offered in language as well.
Homeownership is fundamental to the health and growth of communities. Knowing what
languages potential homeowners prefer helps local lending institutions and relevant government
agencies such as FHFA and CFPB better understanding the evolving dynamics our local populations
and housing potential. While it is true that the Census Department collects information on languages
spoken, that does not necessarily correlate with who is looking to purchase a home. Having a PLDF on
URLA is the absolute most effective way to collect this information.
Asian Americans and Pacific Islanders are the fastest growing segment of the US population, and
are projected to remain so at least through 2050, when the population will have grown by another
134%11. A majority of AAPI are LEPS, with nearly 70% over the age of 18 being foreign-born, and 80%
being “in-language preferred.” Despite this, since 2010, AAPI are the largest minority participant in the
purchase money mortgage market, having applied for and received over two (2) million loans worth
more than $600B USD – amounts that are more than African Americans and Hispanics combined12.
11
https://www.whitehouse.gov/sites/default/files/docs/infographic_1.pdf
Courchane, M., Gailey, A., & Darolia, R. (2014, July 22). “Borrowers from a Different Shore: Asian American
Outcomes in the US Mortgage Market”
12
This action will help grow homeownership rates in the AAPI community, which still lags far
behind non-Hispanic Whites despite having the highest education and income rates amongst any
population, high credit scores, and low debt to income ratios. We encourage our Congressional
representatives to express their support of including the proposed PLDF on the URLA to the FHFA.
QUICK POINTS:
1. Many lenders market extensively to Asian American population in language; however very few
lenders provide in language documentation once the potential consumers moves forward with
obtaining a loan.
2. Asking for an applicant’s preferred language on the URLA is the easiest way to compile language
access data used to give agencies such as HUD and FHFA a better understanding of evolving local
dynamics and housing potential.
3.. Nearly 80% of the AAPI would prefer “in-language” financial materials – these are major financial
decisions and having to navigate the complexities of these documents in a non-native language can be
daunting and a major deterrent for those who would otherwise be able to purchase a home.