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November 1st, 2011

Chinese Americans: A mortgage lender’s best friend?



condosThe Chinese government certainly had a lot to say following the U.S. credit downgrade a few months back. Besides saying that the United States was addicted to debt, China–the largest foreign holder of U.S. debt–warned that if the U.S. doesn’t learn to “live within its means,” it could spell serious financial trouble the world over.

China’s aversion to debt has certainly carried over to those who have emigrated to the states. A recent study suggests that mortgage bankers just might be missing out on a certain borrowing audience that tends to live very debt free. 

Rui Yao, a professor from the University of Missouri, found that while 72 percent of Chinese-American households hold traditional mortgage debt, only 5 percent hold auto debt and only 3 percent hold any other type of outstanding debt.

The good news for mortgage lenders seeking financially stable clients is that the Chinese-American population seems to be growing. By 2010, Asians represented 5 percent of the total U.S. population, with Chinese Americans representing the largest group among Asian Americans.

It’s a cultural thing

Yao believes the adverse opinion of debt is certainly a byproduct of Chinese culture. 

“This result may reflect some unique aspects of the Chinese culture,” Yao said. “Credit and debt are relatively new concepts to the Chinese. Having ties to a country where most purchases are made with cash, debt may not be an acceptable option for low- income households that are aware that debt needs to be repaid with interest in the future. It may also be that high levels of debt for those with relatively higher income reflect relatively higher mortgage balances.”

Yet, this distaste for debt isn’t all good news. While a lack of debt allows a consumer to be better prepared during turbulent financial times, it can also limit greater economic growth.

“Appropriate use of debt can help households improve their quality of life as well as spur economic growth through an increase in market purchases,” said Yao.

Can foreigners save U.S. real estate?

A lot has been made recently about the role foreigners have played and will continue to play in U.S. real estate. Understanding their influence on the market, two U.S. lawmakers have introduced a bill that encourages foreign buyers to purchase U.S. real estate.

Senators Charles Schumer (D-N.Y.) and Mike Lee (R.-Utah) have co-sponsored a bill that is designed to grant a U.S. residence visa to any foreign borrower who spends at least $500,000 on residential real estate here in the U.S.

Foreign buyers can either spend the entire $500,000 on one property, or spend as little as $250,000 on one property and invest the rest on rentals.

If the billed is passed, we could see a significant boost in real estate activity, given the fact that several U.S. markets already depended on the influx of activity that foreign borrowers bring.

According to Les Christie of CNNMoney.com, “In places like South Florida, international buyers already account for a whopping 25% of the market.”

One Response to “Chinese Americans: A mortgage lender’s best friend?”

  1. Renetta Critchlow Says: November 4th, 2011 at 2:05 pm

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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