Buying a house is stressful for many first-time homebuyers. For borrowers with limited English proficiency, navigating the complex housing finance system can be even harder.
The number of households with limited English proficiency has tripled in the past four decades; nearly half are citizens, and a majority have spent more than two decades in the US. Latino and Asian households are projected to be the majority of net new homeowners in the US through 2040, but language barriers among these groups could slow this momentum and dampen housing market forecasts. In fact, previous Urban research found nearly 300,000 additional households (PDF) could be homeowners if not for language barriers.
The Federal Housing Administration (FHA), part of the US Department of Housing and Urban Development (HUD), facilitates access to reasonably priced mortgages, especially for first-time homebuyers and households with low and moderate incomes. Because most households with limited English proficiency are renters and have low and moderate incomes (PDF), ensuring these households have a path to homeownership is key to the FHA’s mission and financial health.
But a HUD directive from this summer calls for eliminating all non-English translations of the agency’s documents and communications. This presents new challenges to multilingual households and to the FHA. Amid these changes, public and private mortgage industry participants—including lenders, servicers, and community organizations—can step in to help close the language gaps.
Multilingual services support homeownership access and stability
Under Title VI of the Civil Rights Act (PDF), federal agencies were required to ensure their programs, activities, and grant recipients provide meaningful access to households with limited proficiency in English. HUD and its grant recipients were tasked with creating language access plans (PDF) to assess their service populations’ language needs, identify available assistance options, and determine additional services needed to provide adequate access.
The FHA offered translations of numerous mortgage documents in 19 languages. And HUD-approved housing counseling agencies, which serve nearly 1 million homeowners, homebuyers, and renters annually, were also required (PDF) to have counselors or interpreters, fluent in languages spoken by their service populations (PDF)—or make efforts to refer to another agency.
HUD’s translations of key documents are important to helping homeowners in distress pay their debts and keep their homes. This includes (PDF) written communications to FHA borrowers, such as those regarding reduction, denial, or termination of services, and those requiring a response from a household with limited proficiency in English.
For borrowers delinquent on their loans, FHA mortgagees had to provide information (PDF) in “accessible formats or languages” when requested on the availability of homeownership counseling services, ensure “highly visible information” regarding any multilingual mortgage servicing options, and take “reasonable steps” to provide meaningful language access services, either through oral interpretations or written translations of important documents.
Removing these guidelines may limit multilingual borrowers’ ability to access FHA loans. New borrowers fund the FHA through mortgage insurance premiums and often generate profit for the US government, when losses are low. Removing these guidelines could also increase multilingual borrowers’ risks of defaulting on their loans.
A recent study (PDF) finds FHA home-retention activities on average saves $25,000 compared with foreclosure and $19,000 compared with a market-rate modification. Particularly with FHA delinquencies already on the rise, these activities, if made accessible to households with limited proficiency in English, are important to reducing losses to the FHA, keeping borrowers in their homes, and stabilizing communities.
Who will these changes affect most?
Often, a multilingual mortgage borrower lives with someone who’s more proficient in English who can support the borrower with translation. But in 2023, nearly 5.7 million households were linguistically isolated, meaning they lacked someone 14 or older who spoke English very well or fluently.
Latino and Asian renters and homeowners are most likely to need language support when seeking to purchase a home, refinance their mortgage, or find options to avoid foreclosure. The FHA has historically been a significant source of mortgage credit for Latino and Asian households.
Latino and Asian households are also disproportionately likely to be linguistically isolated: 11.3 percent and 15.5 percent of Latino and Asian homeowners experience linguistic isolation, as do 22.7 percent and 22.9 percent of Latino and Asian renters. Language barriers add to other economic challenges: Households with limited proficiency in English are significantly more likely (PDF) to have low incomes than those with proficiency in English.
Many households don’t receive the language services they need
Among the 20 percent of borrowers who speak a language other than English at home, 27 percent said it was important that they obtain mortgage documents in their native language, according to our calculations of National Mortgage Database data. Of these, about 81 percent received translated documents—but among Latino and Asian borrowers who needed translated documents, only 69 percent and 56 percent received them.
Even before the recent policy changes, mortgage applicants weren’t receiving the language services they needed. More work is needed to provide adequate support to multilingual borrowers.
How mortgage industry participants can help fill language gaps
HUD has a financial incentive to continue providing adequate service for multilingual FHA homebuyers and borrowers. There is evidence that language access can be improved across the board. Mortgage industry participants can continue to leverage new and existing tools to fill language access gaps.
Lenders can continue providing (PDF) multilingual marketing materials and loan documents and offering distinct services (such as phone assistance) for multilingual borrowers. Lenders, servicers, nonprofits, and private companies can leverage artificial intelligence and financial technologies to deliver more cost-effective and scalable translation services, while exercising caution to make sure complex financial terms are correctly conveyed. Targeted services in areas with high concentrations of multilingual households, including regions of California, Texas, and New York, can be effective, such as collaboration with trusted local partners, including churches and community centers, to better reach families.
Serving multilingual borrowers is good for consumers and for the housing finance system. With government and industry collaboration, language access services can help maintain the homebuying market and prevent unnecessary losses to the system.
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