Colonias Investment Areas:

Working Toward a

Better Understanding

of Colonia Communities

for Mortgage Access

and Finance

Housing Assistance Council 

November 2020

Executive Summary
2

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 lack — potable drinking water, water 

and wastewater systems, paved streets, and 

standard mortgage financing. 

To address the poverty and lack of infrastructure 

present in communities along the border and 

to target funding to these areas, several federal 

agencies and policymakers have developed 

geography-based definitions of colonias over 

time. These governmental definitions vary, and 

the criteria of what exactly constitutes a colonia 

continue to be challenging.

The Housing Assistance Council developed 

the concept of “Colonias Investment Areas” 

to improve understanding and build a 

comprehensive definition of colonias for the 

purpose of housing finance. The ultimate goal 

of this research was to create a usable and 

programmatic definition of colonias so that 

mortgage and finance resources may be more 

efficiently directed to these often overlooked 

and long-struggling communities.

Read the full report

Additional resources and information

2020 Colonias Investment Areas Data File

Colonias Investment Areas Visualization Tool and Map
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The Housing and Economic Recovery (HERA) Act of 2008 

mandates that Fannie Mae and Freddie Mac have a “Duty to 

Serve” three traditionally underserved markets, including rural 

housing. The final Duty to Serve rule1 promulgated by the 

Federal Housing Finance Agency (FHFA) provides guidance on 

how to define rural areas and high-needs rural regions in order 

to increase Government-Sponsored Enterprise2 (GSE) Duty to 

Serve-eligible activities. 

For some of the high-needs rural regions and populations 

identified in the regulation, including Middle Appalachia, the 

Lower Mississippi Delta, Native American lands, farmworkers, 

and persistent poverty areas, FHFA provided relatively detailed 

definitions for targeting and assessment under the rule. Guidance 

for the colonias definition, on the other hand, did not include 

detailed lists of colonia communities. 

After considering the comments and the varying definitions 

of a colonia, FHFA determined that broadening the proposed 

definition of a colonia could encourage Enterprise support for 

colonias, as defined by federal, state, tribal, or local programs. 

Therefore, FHFA set forth Section 1282.1 of the final Duty to 

Serve rule defining a colonia as:

In its 2016 Duty to Serve Final Rule, FHFA noted it wouldn’t be 

able to provide a data file that lists all census tracts eligible 

under the Final Rule’s definition of “colonia,” as it did for the 

other high-needs rural regions. To address the data challenges 

that exist in specifically identifying the census tracts that 

contain colonias, FHFA encouraged the Enterprises to collect 

and share granular data with researchers, lenders, and housing 

providers regarding GSE purchases of loans that are made 

under any HUD or USDA programs that serve a colonia, are 

eligible for Duty to Serve credit under this Regulatory Activity 

(provided they’re located in a “rural area” as defined in the 

final rule), and are for very low-, low-, or moderate-income 

households as defined under the Duty to Serve rule. This study 

uses these FHFA Final Rule comments to guide our efforts at 

identifying Colonias Investment Areas. The Colonias Investment 

Areas definition is not the same as the definition of colonias in 

FHFA’s Duty to Serve regulation.

 Why 

Reinvestigate 

 Colonias 

 Definitions Now?

“[A]n identifiable community that meets the 

definition of a colonia under a federal, state, 

tribal, or local program.” 

1 FHFA Enterprise Duty to Serve Underserved 

Markets Final Rule, including definitions: fhfa.

gov/SupervisionRegulation/Rules/Pages/Enterprise-Duty-to-Serve-Underserved-Markets-Final-Rule.aspx. Throughout this report, tables and 

figures relying on the term “rural” shall be using 

the definition of “rural area” as defined in the 

Duty to Serve Final Rule.

2 Fannie Mae and Freddie Mac.
4

 Research 

Considerations

 and Methodology

Colonias are not monolithic. 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. Most importantly, 

this study reinforces important structural differences on 

how colonias were originally defined and comprised 

in each of the four border states of Texas, New Mexico, 

Arizona, and California. An important element of the 

Colonias Investment Area development included analysis 

and attention at the individual state level. 

Census tracts are the building blocks for Colonias 

Investment Areas. The Colonias Investment Areas 

concept primarily relies on the U.S. Census Bureau’s 

census tract designation as its geographic unit of analysis. 

While there are pros and cons with any unit of geography, 

sub-county units of geography are often more precise and 

uniform indicators of rurality than counties. In addition, 

tracts align with already established Duty to Serve criteria 

as a unit of measurement, and the use of tracts allows for 

market analysis as well as future assessment of mortgage 

lending activity. 

Colonias Investment Areas were constructed through a data-driven process that focused on unique elements 

of these communities. The approach to develop Colonias Investment Areas and determine which census tracts contain 

colonias involved six basic processes:

Identification of publicly 

recognized colonias.

Geolocation of colonias 

for mapping and 

geospatial analysis.

Aggregation of individual 

colonias into Colonias 

Investment Areas.

Compilation of 

state-level data into 

a comprehensive and 

enhanced database.

4

Exploration of social, 

economic, housing, 

and mortgage finance 

characteristics for Colonias 

Investment Areas. 

5 

Collection of expert and 

stakeholder feedback 

on concept of Colonias 

Investment Areas.

6 

1 2 3
5

Geolocation allowed for mapping in places like Graham County, Arizona

Source: HAC Tabulations of public colonia data.
6

 Research 

Findings

There are 446 distinct Colonias Investment Areas. 

The identified Colonias Investment Areas comprise 

approximately 6% of the U.S.-Mexico border region’s 

census tracts. Overall, Colonias Investment Areas contain 

about 2.5 million people across four states.

Colonias Investment Area measures

Source: HAC tabulations of publicly Available colonia data. 

Colonias Investment Areas are in rural and 

urban communities. Approximately 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. 
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Colonias Investment Areas by Duty to Serve rural classification 

Rural Colonias Investment Areas 

have the greatest needs. 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.

Most — but not all — Colonias 

Investment Areas are in Texas.

Texas is home to 61% of all Colonias 

Investment Areas. While 33 different 

counties in Texas have at least one 

colonia, these communities are largely 

concentrated in a few areas — notably 

the lower Rio Grande Valley. Still, 

each of the four border states contain 

a substantial number of Colonias 

Investment Areas. The relatively broad 

coverage of these communities, despite 

different demographic and housing 

characteristics, indicates that colonias 

are not solely in Texas. 

Colonias Investment Areas are some 

of the most impoverished markets in 

the nation. Incomes are low across the 

border region, and wages are depressed 

as a result of the proximity to low-wage 

workers in border areas of Mexico. 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%. The research 

findings overwhelmingly indicate that 

Colonias Investment Areas experience 

some of the greatest challenges and 

needs in the region, as well as the 

nation, and are therefore appropriately 

targeted as an underserved market. 
8

Source: HAC tabulations of the U.S. Census Bureau’s 2013 – 2017 American Community Survey. 

Housing conditions play a central 

role in the recognition and 

designation of colonias. In many 

colonias, the substandard conditions 

are largely the result of an old, 

deteriorating housing stock, while the 

newer colonias contain homes that 

lack basic infrastructure. Households 

living in Colonias Investment Areas are 

primarily homeowners. 

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 simply 

unsure of such arrangements. 

There is a dearth of mortgage 

lending activity in Colonias 

Investment Areas. Colonias 

Investment Areas have substantially 

lower rates of conventional mortgage 

lending compared to nearly any market 

in the border region or nationwide. To 

make lending activity comparisons, 

the analysis explored lending activity 

as the number of loan originations per 

thousand owner-occupied homes. 

The amount of lending in Colonias 

Investment Areas — using owneroccupied units to standardize the 

measure — 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.
9

Manufactured home lending is highly prevalent in 

Colonias Investment Areas. Manufactured homes are 

an important part of housing in both the border region 

as a whole and Colonias Investment Areas in particular. 

A review of HMDA data finds that loans involving 

manufactured homes represent a relatively large share 

of lending in rural areas in general and are even more 

prevalent in Colonias Investment Areas. Approximately 

15% of all home loan originations in rural Colonias 

Investment Areas involved a manufactured home, 

which is more than twice the percentage for rural 

areas in general. 

High-cost lending is common in Colonias 

Investment Areas. For each border state, high-cost (or 

high interest rate) lending is 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.

Source: HAC tabulations of the U.S. Census Bureau’s 2013 – 2017 American Community Survey and FFIEC’s 2017 Home Mortgage 

Disclosure Act (HMDA) data. 

Source: HAC tabulations of the FFIEC’s 2017 Home Mortgage Disclosure Act (HMDA) data. 

Loans per thousand owner-occupied units
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Colonias Investment Areas originate 

fewer conventional loans and rely more on 

government-backed mortgage resources. 

Colonias Investment Areas have a much smaller 

share of conventional loans. 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%. The difference was made up by higher 

shares of FHA-, VA-, and USDA-guaranteed loans.

Conclusion

The goal of Colonias Investment Areas is 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 Colonias Investment Areas as a reliable 

way to target home mortgage resources and 

finance access to long-overlooked border 

colonia communities.