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THREE - POINTPOLICY PLAN

AREAA POLICY SUMMITMay 3rd - 5th, 2016

Washington, DCwww.areaa.org

EXECUTIVE SUMMARYThe Asian Real Estate Association of America (AREAA) has created this 3-point policy plan outlining issues of vital importance to both the Asian American and Pacific Islander (AAPI) community, and the nation as a whole. Our organization strongly recommends the following actions designed to create a positive investment climate for the economy, reinforce the recent gains in the housing market, and avoid placing unnecessary burdens on small business owners.

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Disaggregate AAPI Data in Quarterly Homeownership ReportsRequest the US Census Bureau disaggregate data on AAPI in Quarterly Homeownership Reports Reauthorization Act of 2015 (H.R. 123)

POLICY POINT 1

This year the Asian Real Estate Association of America began a grassroots campaign calling for the US Census Bureau to give Asian Americans and Pacific Islanders a distinct category in their Quarterly Homeownership reports. Currently, AAPI are categorized within the “Other” category, which includes “people who reported Asian, Native Hawaiian or Other Pacific Islander, or American Indian or Alaska Native regardless of whether they reported any other race, as well as all other combinations of two or more races.” The quarterly report currently breaks down homeownership levels based on regions, age, and income; however when it comes to ethnicity of the homeowners, the Asian community does not have a stand-alone category.

While annual report on homeownership does include a distinct Asian category, the quarterly homeownership levels are what are widely reported in the media and in academic and policy documents. Therefore, these quarterly reports have influence the broad policy and media dialogue around housing and homeownership related to the diverse communities.

Over the last five years, the AAPI community has become the largest minority participant in the housing mortgage market, accounting for 2 million loans valued at nearly $600 Billion . AAPI are also the

fastest growing segment of the US population, and are projected to remain so through the year 2050. More immigrants now originate from China and India than any other country. These numbers speak to the urgent need to have our voices heard, and our needs recognized. The lack of focus on AAPI homeownership creates the wrongful impression that Asian community does not need help and attention. Indeed, some Asian communities face significant homeownership gaps and financing issues. The lack of attention has also resulted in limited corporate focus on Asian American housing issues and clear business strategies for serving this critical segment of the housing market. Simply put, if you are not counted, you are invisible. For a population of 19 million and rapidly growing, this is unacceptable. It is the position of the Asian Real Estate Association of America that the Census Bureau must disaggregate AAPI data in its quarterly homeownership reports so that policymakers, academics, and business leaders are better able to understand the trends and statistics of this dynamic market.

1Courchane, M., Darolia, R., & Gailey, A. (2015). Borrowers from a Different Shore: Asian Outcomes in the US Mortgage Market. Journal of Housing Economics, 28, 76-90.

“While annual report on homeownership does include a distinct Asian category, the quarterly homeownership levels are what are widely reported in the media and in academic and policy documents.”

Alternative CreditSupport H.R. 123 reauthorizing the FHA’s alternative credit pilot program

For years, the Asian Real Estate Association of America has fought for Credit Scoring Reform. H.R. 123 (Rep. Green, Al [D-Tx 9]) FHA Alternative Credit Pilot Program Reauthorization Act of 2015 was introduced last year and has since been referred to the House Committee on Financial Services. The bill would establish an automated process for providing alternative credit rating information for mortgagors and prospective mortgagors under certain mortgages. Essentially, if a traditional credit scoring system was unable to accurately or wholly rate a person, that person would be eligible to receive an alternative rating.

This bill amends the National Housing Act to extend from five to ten years the pilot program

to establish for mortgagees an automated process for providing alternative credit rating information on mortgagors and prospective mortgagors under mortgages on 1 to 4 unit family residences who have insufficient credit histories for determining their creditworthiness. This is an extension of Section 2124 of the “Housing and Economic Recovery Act of 2008 (HERA) which directed the Secretary of HUD to create a pilot program at FHA to automate alternative credit rating information such as rent payment and utility payments. AREAA had worked with Congressman Green on this Section of HERA. Credit scores are a main determinant in a person’s ability to secure a mortgage. A credit score is a rating of a person’s ability to repay a loan, based on their history of debt repayment. However, because many AAPI come from cultures that do not value taking on debt in the Western sense, they are more likely to receive inaccurate or incomplete scores, and in some cases are altogether “unscorable.”

While many AAPI are perfectly capable of paying their rent and

POLICY POINT 2

“Over the last five years, the AAPI community has become the largest minority participant in the housing mortgage market, accounting for 2 million loans valued at nearly $600 Billion . ”

“The lack of focus on AAPI homeownership creates the wrongful impression that Asian community does not need help and attention. Indeed, some Asian communities face significant homeownership gaps and financing issues.”

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Wheeler, L. (2014, September 12). Real Estate Industry Supports 1031 Exchanges. Retrieved April 7, 2015.Brown, D. (2014, May 1).” 1031 Like-Kind Exchanges: An Exceptional Tool for Real Estate Investors”. Acquire Magazine, 28-28.Ling, David C., Petrova, Milena (June 2015). “The Economic Impact of Repealing of Limiting Section 1031 Like Kind Exchanges in Real Estate.” 2013 Nielsen. “Significant, Sophisticated, and Savvy: The Asian American Consumer.”

POLICY POINT 31031 Exchange ReformReject any language limiting or repealing section 1031 in FY2017 Budget

The Section 1031 Like-kind Exchanges are a primary driving force behind commercial and investment real estate. Nearly 30% of all real estate transactions recorded each year invoke the over century old tax deferred option . Since 1921, and further cemented under the Starker ruling of 1979, Congress has held the position that real estate investment should be promoted, and “taxpayers should not be held hostage out of fear of the tax consequences of selling.” By increasing the liquidity in the real estate market, Section 1031 encourages businesses and real estate investors to expand, purchase new property, and ultimately help stimulate the economy.

It is also important to keep in mind that these exchanges are merely “tax deferred” and not “tax exempt.” In fact, according to a new study entitled The Economic Impact of Repealing or Limiting Section 1031 Like Kind Exchanges in Real Estate , a majority (88%) of those who invoke a like kind exchange will pay up to 19% more in taxes the

“However, because many AAPI come from cultures that do not value taking on debt in the Western sense, they are more likely to receive inaccurate or incomplete scores, and in some cases are altogether “unscorable.” ”

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monthly utilities, they are unable to qualify for a mortgage because current credit scoring models do not account for these common sense factors. New systems, such as VantageScore 3.0 and FICO 9, do account for these, and thus bring credit scoring into the 21st century by accounting for different lifestyles and cultures.

This is not a loosening or weakening of the credit system. In fact, many studies suggest that these newer models offer more accurate predictions of a person’s ability to repay a loan. Further, not every person will qualify to use an alternative system, only those that the current systems cannot accurately account for.

The Asian Real Estate Association of America fully supports HR 123, and urges Congress to pass this critical legislation.

“While many AAPI are perfectly capable of paying their rent and monthly utilities, they are unable to qualify for a mortgage because current credit scoring models do not account for these common sense factors. ”

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6Wheeler, L. (2014, September 12). Real Estate Industry Supports 1031 Exchanges. Retrieved April 7, 2015.7Brown, D. (2014, May 1). 1031 Like-Kind Exchanges: An Exceptional Tool for Real Estate Investors. Acquire Magazine, 28-28.

Asian Americans are also 30% more likely to invest in real estate outside of their primary residence than other segments of the population. According to the previously mentioned study, for a typical property owner who defers his or her gain, repealing like-kind exchanges would raise the effective tax rate on the taxpayer’s investment (including rental income and gain; nine-year holding period) from 23 percent to 30 percent. In order to generate the same sort of return an investor would have by using a Like-Kind Exchange, property values would have to drop by up to 12%, which would in turn discourage new construction. Further, rent prices would then need to increase by nearly 13% before new construction is seen as a viable alternative. This would lead to a significant disruption in not only the housing market, but the nation’s economy as a whole.

For these reasons, it is the position of the Asian Real Estate Association of America that Section 1031 Like-Kind Exchanges be left unchanged.

“many studies suggest that these newer models offer more accurate predictions of a person’s ability to repay a loan.”

“By increasing the liquidity in the real estate market, Section 1031 encourages businesses and real estate investors to expand, purchase new property, and ultimately help stimulate the economy. ”

“As Section 1031 is a useful tool for any business owner or property investor, the effects of an elimination or repeal of the code on the AAPI business community would be monumental.”

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following year than they would have had they not used the section code. 34% of the potentially deferred taxes end up being paid in the same year as the transaction.

For Asian Americans and Pacific Islanders, this is a particularly important issue. According to the US Department of Commerce’s Minority Business Development Agency, Asian Americans own roughly 1.5 million of the 5.8 million minority firms in the US, account for $506 billion in total yearly revenue, and employ 2.8 million Americans. As Section 1031 is a useful tool for any business owner or property investor, the effects of an elimination or repeal of the code on the AAPI business community would be monumental. Many AAPI business owners rely on the code in order to afford moving to a better neighborhood where they can make more money, or purchasing a larger property so they can hire more workers.

ABOUT AREAAFounded in 2003, the Asian Real Estate

Association of America (AREAA) is a national professional trade organization dedicated to promoting sustainable homeownership

opportunities in Asian American communities by creating a powerful national voice for the

housing and real estate professionals that serve this dynamic market.

AREAA will accomplish this mission by:

Advocating for policy positions at the national level that will reduce homeownership barriers

facing the Asian American community.

Increasing business opportunities for mortgage and real estate professionals that

serve this growing community.

Who We Are AREAA’s membership represents a broad

array of real estate, mortgage and housing-related professionals that serve the diverse

Asian American market. With members that serve nearly all segments of the Asian

American population, AREAA is the only trade association dedicated to representing the interests of the Asian real estate market

nationwide. Currently, the association serves over 15,000 members in 17 states and Canada

with 35 affiliate chapters.

Expanding Homeownership Opportunities and Supporting Business Growth

AREAA pursues initiatives that will expand homeownership opportunities for more Asian

and immigrant families, increase business opportunities for our members, and deliver

tangible results for our national partners. Over the next two decades, Asian Americans will be

one of the fastest growing populations in the country. Because most Asian Americans are largely first generation Americans, they face significant language, cultural and knowledge

barriers which have kept the homeownership rate relatively unchanged over the past two

decades. AREAA will initiate national and regional efforts to address these challenges.”

15,000 Members and Growing

AREAA

36 Chapters Across US and Canada

51 Ethnicities Represented

26 Languages Spoken

2 Major National Events Per Year

Policy Summit in DC Each May

Multiple Trade Missions to Asia Each Year

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