The Title Wave That Isn't

American Demographics, Oct 1, 2003 by Sandra Yin

Lenders have tended to avoid those homebuyers who exhibit less financial confidence, particularly Fannie Mae's "Financially Challenged" and "Friends & Family" segments. More often than not, their credit score is a total mystery to them, and they are apt to worry that their credit rating is blemished, even if it's not.

The "Financially Challenged" prefer to deal one-on-one with trusted advisers who offer guidance as they make their way through financial transactions. A majority of these consumers say they have fallen behind on credit card payments. Not surprisingly, this group is less likely to own a home than average. They are more likely than average to describe the mortgage process as a humbling experience. Most tend to think they didn't get the best mortgage possible, compared with a majority of all surveyed who think the opposite. Less than half say they thought the loan officer was on their side compared with a majority of the total sample of mortgage applicants in the study. According to Fannie Mae estimates, one-fourth of African Americans fall into this "Financially Challenged" classification, as well as one-quarter of English-dominant Hispanics and 28 percent of Spanish-dominant Hispanics. The number of Asians in the sample was too small to be nationally representative.

Like the Financially Challenged, consumers in the Friends & Family group have poorer credit habits than average. They tend to have smaller mortgages, less equity and monthly payments that represent a higher than average share of their monthly salary. Although they believe they understand the process, they still feel it's a humbling experience. Consumers in this segment are far more likely than average to consider quick approvals a priority. They prefer to talk to a real person during the lending process. One-third of blacks fall into this category, as do 22 percent of English-dominant Hispanics and 57 percent of Spanish-dominant Hispanics.

Minority home buying consumers have less confidence in their credit than their mainstream counterparts do. African Americans and Hispanics are much more likely to worry that their credit rating is blemished, says Vada Hill, senior vice president and chief marketing officer of Fannie Mae's Consumer Insights marketing division. While less than one-third (28 percent) of whites surveyed said they thought their credit rating could be better, 64 percent of African Americans and 50 percent of Hispanics share that belief. Consumers who are more likely to fear rejection based on their credit ratings are also more than twice as likely to believe they'll have difficulty getting approved for a mortgage. These fears shape their behavior. "If you're worried about getting approved," says Hill, "you'll just get the 'yes,' take what you're given and run away as soon as you can." Giving priority to obtaining loan approval versus shopping for the most cost-efficient loan opens these consumers up to predatory lenders who lock them into high interest rate loans.