WASHINGTON–The dwindling rate of homeownership isn’t just due to high home prices, but also to lenders not making enough small-dollar mortgages that help families with modest incomes to purchase a property, according to the Center for Responsible Lending.
While more than a quarter of home sales nationwide are for houses priced below $100,000, just 23.2% are purchased using a mortgage compared with 73.5% of homes priced at or above $100,000, according to analysis by the Urban Institute cited by CNBC.
“It is particularly hard for people who are buying smaller houses with smaller mortgages to find a lender and to get that mortgage,” Mike Calhoun, president of the Center for Responsible Lending, told CNBC. “And they also surprisingly are more expensive.”
The issue has been getting worse, the new report noted, with CNBC reporting the value of mortgage loans between $10,000 and $70,000 and between $70,000 and $150,000 dropped by more than 53% and over 21%, respectively, from 2011 to 2021, according to research by Attom Data Solutions. Meanwhile, the value for loans exceeding $150,000 rose by a “staggering 240% plus” in the same period, the report added.
Higher Denial Rates
A separate study, meanwhile, found denial rates for small-dollar loans were notably higher than denial rates for larger loans. And it’s not because these loans are riskier. Accompanying research found that applicants for small-dollar loans had similar credit profiles to applicants for larger loans, according to CNBC.
The real reason is profit, the analysis suggests.
“One barrier for small-dollar mortgages is that it’s just not as profitable for lenders to do them,” Janneke Ratcliffe, vice president of the Housing Finance Policy Center at the Urban Institute, told CNBC. “Lenders get all their fees and interest based on the loan amount so they’re going to get a lot less revenue on a $70,000 mortgage than they are on a $700,000 mortgage.”