Editor's note: This cover feature appears in the September print issue of DS News magazine, available here.
Twenty years ago in Santa Anna, California, Frank Fuentes, son of migrant farm workers, came across an ad in a PennySaver. “Hiring: Loan Officers. No experience necessary. Opportunities are endless …” it read. Recalling his mother’s words, “Hijo, siempre debes trabajar con la cabeza y no con la espalda”—that is, “Son, you should always work with your head and not your back”—the young man dialed the number and reached Rick Arvielo, who, along with wife Patty, operates New American Funding.
“The next minute, you know it, I am sitting in his office being interviewed, and the rest is history,” Fuentes said. Then Arvielos tasked Fuentes with fielding calls from Spanish speakers. “I was the call center back then,” Fuentes said. “I gained a tremendous amount of experience and must have helped 3,000 families over my career, 95% of them within the Hispanic sector."
In 2013, the Arvielos promoted Frank Fuentes to VP of Multicultural Lending, New American Funding, where he is responsible for aligning the company with nonprofit organizations that share their quest to make homeownership a reality for more Americans, but he still spends much of his time originating loans that often require a little more manual work than others.
"It's like putting on your boxing gloves when you submit a Latino loan to underwriting, because it's going to take more time and therefore more resources," he says. "A lot of diverse borrowers are not going to fit within that box that the technology-driven companies want them to fall under."
With the nation growing more diverse by the year, how can the mortgage industry adapt to both meet the needs of those diversifying borrowers and to ensure that the workforce itself reflects an internal commitment to diversity, inclusion, and equity?
Mirroring the Communities You Serve
Across the country, social movements as well as pressure from advocacy groups, politicians, and workforces have prompted companies and organizations to renew their focus on fostering a more inclusive environment through diversity, equity, and inclusion (DEI) initiatives. As much or more than any other industry—because of its direct influence on and reflection of Americans' financial health—the mortgage business' ability to do so effectively will be a critical indicator of progress as a society.
Fuentes' story exemplifies the way representation within the industry can increase opportunities for homeownership and wealth building in historically underserved communities.
"We have to bring more mortgage people of diverse backgrounds to the industry," he said, adding that this goes for sales, marketing, underwriting, and every other position in an office. Moreover, companies must be willing to apply resources and understand that making homeownership a possibility for a more-diverse array of qualified borrowers can take more time.
"Each market/submarket has its own distinct audience and culture and will require a unique voice. That’s why diverse teams are so important for generating growth. They're not just diverse in ethnicity, but also diverse in their thought and ideas. This helps to create environments that are more elastic." —John Drumgoole Jr., VP, Minority Lending for New American Funding, Member, Forbes contributor and Human Resources Council member
As America's homeownership rate continues to rise overall, the Black-white homeownership gap in early 2021 stood at 28.1 percentage points, an improvement from the record high of 30.8 percentage points in 2019 but still large by historical standards, and the Hispanic homeownership rate stood nearly 26 percentage points below that of white households, according to a study by Harvard's Joint Center for Housing Studies. Homeownership, of course, correlates directly with wealth.
The Federal Reserve's 2019 Survey of Consumer Finances shows a median household wealth for white families of about $188,000, compared with $36,000 among Latino families and $24,000 for Black families.
The Brookings Institute in 2019 showed whites, Hispanic or Latinos, Blacks, and Asian Americans currently represent 60.1%, 18.5%, 12.5%, and 5.9% of the U.S. population, respectively. And the U.S. Census Bureau numbers release mid-August revealed the growth in the American population over the last decade was driven entirely by minority communities, as the number of white Americans declined for the first time since the nation's founding.
However, when it comes to the population of Americans working within housing-finance and mortgage, those numbers shift to 71.6% white, while Hispanic or Latino, Blacks, and Asian Americans represent 9.1%, 7.5%, and 9.4%, respectively.
In the years 2000-2019, the housing industry workforce increased by 66%, yet the representation of Hispanic or Latino and Blacks only increased by 5% and 1.98%, respectively, according to a report this year by Fannie Mae. During the same 19-year period, Hispanic or Latino CEO representation in the housing industry increased by 4.15% and Black CEO representation edged up by just 0.34%.
Diversity, equity, and inclusion (DEI) experts say changes within the industry can translate to progress as a nation toward a fairer housing and mortgage-finance system.
Kenneth Imo, VP of Diversity, Equity, and Inclusion, Fannie Mae, says the representation gap within the industry is so huge that it would take more than a century to close without direct intervention.
"While the country is rapidly becoming more diverse, the housing industry is not. And it is imperative that the industry reflect the country it serves to more effectively address the inequities that have disadvantaged far too many," Imo said. "If the housing industry falls victim to what Dr. Martin Luther King Jr. once described as the 'tranquilizing drug of gradualism,' it will take 114 years for the industry to mirror the diversity of our nation. Consequently, doing nothing is not an option."
"For decades we’ve considered [DEI] initiatives as the right thing to do,” said Windi Gerber, SVP of Human Resources, Open Mortgage, but even as our country grows more diverse, mortgage lending continues to see racial imbalances in employment opportunities and credit availability ... Borrowers and potential homebuyers in underserved areas simply do not have the same opportunities as other similarly situated borrowers. This disconnect leads to lower homeownership rates for Blacks and Hispanics and impacts the ability to grow long-term generational wealth."
John Drumgoole Jr., VP, Minority Lending, New American Funding, Forbes Contributor and Human Resources Council Member, and award-winning author speaks to the importance of "mirroring the communities you serve."
"When there’s limited representation it creates somewhat of an imbalance and micro-vacuum dynamic," Drumgoole said. "Most high-performing minority loan officers can easily chart 60-70% of their lending mix to communities of color. Imagine what that could look like for our industry if we had more diverse representation."
"People have an interest in those things that they have exposure to. If, for various reasons, you have been unable, or you haven't had exposure to a career in housing finance, why would that even register as something that you would even want to consider doing?”—Kenneth Imo, VP of Diversity, Equity, and Inclusion, Fannie Mae
Achieving Balance in the Mortgage Workforce: "A Tall Order"
Achieving a more appropriate balance, and doing so with some sense of urgency, is "a tall order," says Drumgoole.
Referring to a Consumer Financial Protection Bureau (CFPB) report, he points out that "three of the top 10 barriers to homeownership for African Americans can be solved by putting minority representation at the table to mirror their communities."
But staffing in a more-inclusive manner, especially for positions of considerable influence, must be done tactically.
"It’s easy to place bodies in empty seats, but when you are looking for the right culture fit, you need to be more strategic in your approach. In a high-fiduciary position like mortgage lending, you not only need congenial people, but well-qualified and well-skilled people ... you’ll also need to give your field generals—boots on the ground—a great amount of ownership in the process as well. Best practices have shown us that they will have a much keener lens as to how to align human capital, costs, and output with the corporate objectives that foster the greatest profitability and market impact."
Gerber says HR professionals should regularly examine methods of candidate selection.
"Leaders should reimagine their hiring processes with an understanding of economic disparities, removing unnecessary qualifications for roles that don’t warrant higher education," she said. "Similar to how the COVID pandemic challenged organizations to consider candidates outside of their geographic pool, we should also be considering relevant selection alternatives with candidates who demonstrate knowledge and ability through position-related training and certifications without the need for a college degree. Forward-thinking organizations are already challenging industry norms with an intentional focus on comprehensive training programs that attract more diverse talent as well as younger generations."
Drumgoole, too, suggests nurturing talent that exists within a company through programs such as in-house universities, which, he says, foster atmospheres that uncover hidden or dormant talent within their cultures and target markets.
"Great value will be attributed to organizations with top-notch programs tailored toward project-based learning. Why? Because remarkable companies understand the value of the 70-20-10 rule. This theory states that 70% of our learning develops from real-life, on-the-job experiences and tasks; 20% of our learning comes from specific feedback from individuals such as leaders, coaches, managers, and mentors; and the remaining 10% of our learning comes from formal training and education. Knowledge is increasing at a faster rate. The idea that leaders are readers and continual learners has never been more pertinent than in our current backdrop."
Educating a New Generation of Mortgage Professionals
New American Funding's in-house program, New American Dream, provides homebuying education and accessibility to credit for consumers as well as mortgage industry career opportunity awareness in Black communities.
Fannie Mae's Future Housing Leaders (FHL) formed in 2018 and involves partnering with university-backed initiatives to connect college students to paid summer internships and early career opportunities in the housing industry, with an emphasis on recruiting from historically underrepresented groups. Through it, the GSE uses its position in the housing ecosystem to rally collaborators, diversify the housing industry, and bridge the lending gap, according to Fannie Mae’s Kenneth Imo.
“Historically, in a lot of ways people were excluded from being full participants in housing, through practices like redlining that carved up neighborhoods based on demographic groups and made underwriting decisions based on the color of someone's skin. And then we have seen that have a direct link to a lack of access to opportunities, and we are living with the consequences of that now,” Imo said.
He says that merely exposing previously unincluded demographics to the housing industry will draw more to the profession.
“People have an interest in those things that they have exposure to. If, for various reasons, you have been unable, or you haven't had exposure to a career in housing finance, why would that even register as something that you would even want to consider doing?” Imo asked.
Changing the makeup of the industry is no small feat, he acknowledges, but adds that his company has encountered no shortage of steadfast partners who share its commitment to DEI. "If we succeed, our efforts will have a resounding impact on the housing industry, homebuyers and renters, and the careers of program participants."
Rethinking Public Relations
Fuentes adds that inclusive marketing is vital when it comes to reaching future homeowners in historically underserved neighborhoods.
For example, he says, "a lot of us still have the idea that just by translating a flyer into Spanish, that's going to satisfy the need for targeting the Hispanic market. They might not realize that Latinos, Hispanics are a very young, 28-, 29-year-old demographic, or that these millennials, a high percentage of them, actually speak English. If you want to target and educate and find these consumers, you may have to incorporate Spanglish, or straight English in some markets."
He says companies need marketing experts who are "culturally keen."
Drumgoole says such segmented marketing can significantly help companies achieve new growth in emerging markets.
"Each market/submarket has its own distinct audience and culture and will require a unique voice. That’s why diverse teams are so important for generating growth," he said. "They're not just diverse in ethnicity, but also diverse in their thought and ideas. This helps to create environments that are more elastic."
Added Gerber, "A diverse work environment promotes a wider perspective on customer needs and yields greater innovation with expanded product design and market awareness."
The Importance of Allies
With the new administration came intensified political focus not only on a more racially equal housing system but also one more inclusive of the LBGTQ+ community.
The Biden Administration in January issued an Executive Order on Preventing and Combating Discrimination on the Basis of Gender Identity or Sexual Orientation. As a result, the Department of Housing and Urban Development announced plans to include the LGBTQ+ community under the Fair Housing Act.
The Consumer Financial Protection Bureau also affirmed in March that LGBTQ+ discrimination in credit and lending is illegal. They also announced plans to enforce the Equal Credit Opportunity Act on behalf of the LGBTQ+ community.
The LGBTQ+ Real Estate Alliance was founded June 2020—with chapters throughout the U.S., Canada, and Puerto Rico—and advocates for fair housing.
The Alliance’s President, John Thorpe, points out that, even in the 2020 Census, LGBTQ+ people, unless legally married, are not counted, making it difficult to compare general population percentages to the housing industry. However, the Alliance has partnered with Fannie Mae and National Association of Realtors to learn more about LGBTQ+ homeownership.
They found that members of the LGBTQ community are less likely to be homeowners.
About 49% of LBGTQ+ folks own their home compared to 64% for the overall population. Homeownership drops even further for Latinx and Black Americans who also identify LGBTQ+.
Fear of any type of discrimination in the future homebuying process is a concern for 46% renters, and Thorpe says other issues are at play in this population.
“So many in our community feel an added burden in their high school and college years, including a lack of family support, that can lead to reduced academic success, which in turn can impact earning potential and even lead to homelessness," Thorpe said, adding that discrimination in the workforce and in the home buying process creates barriers. He hopes research from the Alliance will "provide those working in the real estate industry and beyond with a greater understanding of how discrimination is keeping so many in the LGBTQ+ community from reaching their full potential and ultimately becoming homeowners.”
He says 27 states offer no legal protections for the LBGTQ+ community.
Despite the lack of firm local legal protection, nearly 70% of Alliance members surveyed earlier this year believed that the Biden Administration's order will have positive effects for LGBTQ+ people, a market that, according to the same study, represents an estimated $1 trillion in buying power.
Alliances with other groups that face discrimination are important to Thorpe and the organization. About 10% of the alliance’s 1500 members are allies, he says. "Our mission for the beginning was to be inclusive of allies,” he said. Recalling a cheer from the early days of his activism, he added, "no one is free when others are oppressed."