Why The U.S. Mortgage Market Is Broken

For decades, Americans have relied on mortgages to purchase a home. But experts say that several aspects of today’s mortgage market including cost, the lack of small-dollar loans and lender bias have all greatly hindered Americans from owning their own property. Can the U.S. do anything to fix the broken system and allow mortgages to improve homeownership in America? Watch the video to find out. High home prices aren’t the only reason behind dwindling homeownership in the U.S. Banks and financial institutions aren’t issuing enough small-dollar mortgages that help families with modest incomes to purchase a property. “It is particularly hard for people who are buying smaller houses with smaller mortgages to find a lender and to get that mortgage,” said Mike Calhoun, president of the Center for Responsible Lending. “And they also surprisingly are more expensive.” More than a quarter of home sales nationwide are for houses priced below $100,000. Yet, just 23.2% are purchased using a mortgage compared with 73.5% of homes priced at or above $100,000, according to the Urban Institute. And the issue has been getting worse. 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. Another study found that 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. The real reason is profit. “One barrier for small-dollar mortgages is that it’s just not as profitable for lenders to do them,” according to Janneke Ratcliffe, vice president of the Housing Finance Policy Center at the Urban Institute. “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.”