Over the past four decades, the number of limited English proficient (LEP) households in the US has almost tripled. Today, close to 5 million heads of household have a limited ability to speak, read, write, or understand English.
Among the systemic barriers to financial well-being they face, LEP households often struggle to navigate the complex mortgage finance system, making it difficult for them to become homeowners—a key tool for building wealth in the US. Language barriers lead LEP borrowers to encounter more problems than English proficient (EP) borrowers during the mortgage application process, which involves multiple actors and unfamiliar terms.
In a recent Urban Institute study, we examine the role language proficiency plays in the homeownership rate gap between LEP and EP households. We also look at how language spoken at home and other characteristics may affect homeownership rates among LEP households. Using a regression analysis, we estimate that removing language barriers would increase the number of LEP homeowners by nearly 300,000.
Homeownership rates are lowest among LEP households, but rates vary by language spoken at home
LEP households have substantially lower homeownership rates than EP households. The homeownership rate among LEP households was 28 percentage points lower than among EP households who speak English at home and 17 percentage points lower than among EP households who speak other languages at home.
The homeownership rate between EP and LEP households varies considerably by language. The LEP and EP homeownership gap is highest among Russian households (37 percentage points) and lowest among Korean households (10 percentage points). Among LEP households, the Vietnamese homeownership rate is the highest (58 percent), while the Russian homeownership rate is the lowest (22 percent).
Some of these homeownership rate differences between LEP and EP borrowers can be explained by household characteristics. LEP households are more likely to be immigrants, be older, have lower incomes, and have less educational attainment compared with EP households who do not speak English at home.
Language spoken at home and length of time in the US are also factors. For example, Spanish-speaking households, who account for about 70 percent of all LEP households, are more likely to be noncitizens than other LEP households. A large share of LEP households who speak Korean, Tagalog, or Vietnamese at home have lived in the US for more than 21 years, while Arabic- and Portuguese-speaking LEP households make up a higher share of those who have been in the US for less than 5 years.
After controlling for household demographics, socioeconomic characteristics, and market affordability, the EP-LEP homeownership gap narrows, but it does not disappear. The homeownership gap between EP and LEP households drops from 28 percentage points to 6.2 percentage points once we control for observable factors. A portion of the remaining gap could be attributed to language barriers, but we could not fully control for other factors that affect homeownership, including wealth and credit scores.
Policymakers and others have taken steps to remove language barriers for LEP households
Policymakers, individual lenders, and federal entities—including the Consumer Financial Protection Bureau (CFPB), the Federal Housing Finance Agency (FHFA), Fannie Mae, and Freddie Mac—have already taken actions to improve the mortgage experience for LEP households.
Namely, the CFPB has identified actions that financial institutions can take to better serve LEP consumers (PDF) and has published translated disclosures for lenders and early intervention clauses (PDF) for mortgage servicers.
In addition, the FHFA, Fannie Mae, and Freddie Mac created the Mortgage Translation Clearinghouse, an online collection of translated resources to help lenders, servicers, and housing counselors better serve LEP borrowers. In 2022, Fannie Mae launched HomeView en Español, a Spanish language version of its online certification course for first-time homebuyers. In March 2023, the FHFA started requiring lenders that sell to Fannie Mae and Freddie Mac to collect preferred language information from borrowers.
But further action is needed to improve language access in the mortgage process
These government agencies and government-sponsored enterprises (GSEs) have taken some important first steps, but more work is needed to elevate existing resources and expand homeownership access among LEP households.
Though some lenders offer translation services, most do not. For example, among the 10 largest mortgage lenders by volume, only 5 translate their entire website into Spanish, and translation quality varies. Lenders could do more to connect borrowers to translated resources that could help them better understand the mortgage process. Regulators could require lenders to make borrowers who speak a language other than English at home aware of the existing resources published by the GSEs and the CFPB, including the Mortgage Translation Clearinghouse.
The LEP population is geographically concentrated. Although less than 26 percent of all US households live in California, Texas, and New York combined, more than half of all LEP households live in these states. Geographically targeting language services by state, region, or even neighborhood could help lenders identify new customers and expand homeownership access. To build relationships with LEP consumers, lenders in these areas could create pathways for and hire loan officers who are fluent in languages other than English or collaborate with trusted community partners to offer non-English mortgage services.
In some communities, smaller lending institutions, particularly minority depository institutions (MDIs), may provide more services in languages other than English compared with larger lenders. Partnerships between MDIs and larger lenders could help both institutions expand their reach. More broadly, increasing the number of institutions that offer services in languages other than English will enable more LEP borrowers to shop around for the best rates and offerings.
Among localities with large LEP populations, the needs of LEP households vary widely in terms of language spoken and familiarity with the American homebuying process. More research is needed to understand language access needs at the local level, and lenders will likely need to use different strategies for different communities (PDF).
Because of differences in educational attainment, income, and years in the US between LEP borrowers and EP borrowers, LEP borrowers may require more time and attention from the professionals serving them. But the current mortgage origination incentive structure does not reward those who spend more time with consumers. To widen the credit box and better serve the market, lenders could consider restructuring incentives to reward employees who have the skills to work with LEP households.
Lenders who find effective and efficient ways to decrease language barriers in the mortgage market will likely increase their market share while helping more LEP households become homeowners and build wealth.
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