In the United States, the term “colonias” has been applied generally to unincorporated communities along the U.S.-Mexico border in California, Arizona, New Mexico, and Texas that are characterized by high poverty rates and substandard living conditions. In practical terms, colonias are defined primarily by what they often lack — potable drinking water, water and wastewater systems, paved streets, and standard mortgage financing. Over the past few decades federal agencies and policymakers have developed geography-based definitions of colonias to help address some of these deficiencies. These governmental definitions vary, and the criteria of what exactly constitutes a colonia were increasingly dated and outmoded.

The Housing Assistance Council (HAC), with support from Fannie Mae, developed the concept of “Colonias Investment Areas” to better inform a comprehensive understanding and definition of colonias specifically related to the provision of home mortgage finance in this region. The goal was to develop a comprehensive, usable, and uniform definition of colonias to inform the targeting of mortgage and finance resources so they can be more efficiently directed to these often overlooked and financially underserved communities.

There Are Nearly 450 Colonias Investment Areas in the United States

Colonias Investment Areas are census tracts that contain one or more government recognized “colonias.”  While the definition is relatively simple, finding and identifying colonias communities was not as easy. Consistent with their origins, colonias are irregular developments that typically don’t conform to standard boundaries, or codes and planning standards. Despite being categorized together, colonias vary extensively within the border region, from small clusters of homes located near agricultural employment opportunities to established communities in and near urban centers. 

Colonias Investment Areas make up six percent of the U.S.-Mexico border region’s census tracts and contain approximately 2.5 million people across four states. One-half of Colonias Investment Areas are in rural census tracts, yet a substantial number of Colonias Investment Areas are in what would be considered suburban or even urban tracts — especially in Texas.  Some of the greatest need can be found in rural Colonias Investment Areas, particularly those in geographically isolated areas. While economic, housing, and mortgage access deficits are generally present in any colonia regardless of location, these conditions are consistently more acute in rural Colonias Investment Areas, especially in elements of current mortgage activity and investment.

Explore the Colonias Investment Area Online Map by clicking on the image.

Absence of Conventional Mortgage Lending

Colonias Investment Areas have substantially lower rates of conventional mortgage lending compared to nearly any market in the border region or nationwide. But first, it is important to realize that underlying economic and housing dynamics compound mortgage financing in many colonias. Incomes are generally low across the border region. The U.S. poverty rate is an estimated 15%, while the aggregate Colonias Investment Area poverty rate is nearly twice that national rate at 27%. These economic circumstances manifest themselves deeply and visibly in the region’s housing stock. In many colonias, the substandard conditions are largely the result of an old, deteriorating housing, particularly manufactured homes, while the newer colonias contain substandard homes that are often owner-built in a piecemeal fashion and, even with mandated access to water and sewer system services, continue to lack other basic infrastructure like paved roads, sidewalks, and streetlights. 

Households living in Colonias Investment Areas are primarily homeowners. But the amount of mortgage lending in Colonias Investment Areas is half the rate of the larger U.S.-Mexico border region. Loan activity is nearly three times lower in rural Colonias Investment Areas compared to the larger border region, according to Home Mortgage Disclosure Act (HMDA) data.

Nonconventional financing dynamics lead to an asymmetric financing system in Colonias Investment Areas. Many border residents use informal or nonconventional financing mechanisms to obtain homeownership. This is an indication of the gap in traditional financing available to low-income and immigrant populations. In some cases, there may be few conventional financial institutions in remote rural areas. Another likely contributor is the large immigrant population, which may be unfamiliar with services offered by banks or who are simply unsure of such arrangements. 

Colonias community in Dona Ana County, New Mexico. (Photograph courtesy of the Housing Assistance Council)

High Interest Rates

For each border state, high-cost (or high interest rate) lending was more common in Colonias Investment Areas than in non-Colonias Investment Areas. These levels of high interest rate lending are yet another indicator of extreme deficiency in access to conventional mortgage finance. It is important to note that, per HAC’s analysis of HMDA data, while homeownership is generally high in these markets, a portion of these households may have home or land financing elements that charge high fees or include usury terms and fees. 

Lenders in Colonias Investment Areas originate few conventional loans with government-backed mortgages making up a large share of home lending resources. In the U.S. and larger border region, about three-quarters of originations were conventional loans, but for Colonias Investment Areas, it was slightly more than 50%.  This larger share of government-backed mortgages, however, is not caused by a high volume of such lending (it remains near national rates) but by the extremely low volume of conventional lending which are far below the national level.    

Where Do We Go from Here? 

The concept and geographic analysis to identify Colonias Investment Areas was undertaken to inform and enhance access to conventional mortgage finance in colonias communities and the border region. While no geographic designation is perfect, extensive research, analysis, testing, and stakeholder feedback reinforce the concept and elements of Colonias Investment Areas as a reliable mechanism to inform and provide more targeted and efficient delivery of home mortgage resources and finance access to long-overlooked border colonia communities.

Ultimately, the research and investigation on this topic tell us two important things. First, Colonias are not monolithic. The study reinforced important structural differences on how colonias were originally defined and comprised in each of the four border states. There are thousands of colonias communities with their own unique identities, histories, challenges, and aspirations. These communities require and demand unique strategies for their residents. Secondly, no research or national resource approach can be successful without the integral component of the colonias communities and community-based organizations that serve them in the Border Colonia region. These local entities have the knowledge, experience, and trust of the people they serve and are the true catalyst that convert resources into more mortgage access and better housing conditions in the colonias. 

For more information on colonias and Colonias Investment Areas visit a recent article in the journal Cityscape “Colonias Investment Areas: A More Focused Approach.”  Or the full research report Colonias Investment Areas: Working Toward a Better Understanding of Colonia Communities for Mortgage Access and Finance

Keith Wiley is the senior researcher at the Housing Assistance Council.

Lance George is the director of research and information at the Housing Assistance Council.

Sam Lipshutz is a policy and impact manager at Amazo

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