Homebuyers Struggle to Find Small Mortgages

Nationwide, not enough small mortgages are available to help people purchase available low-cost homes, a problem that disproportionally harms first-time homebuyers, Black and Hispanic families, and low-income households. In August 2022, The Pew Charitable Trusts submitted comments to the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. on possible regulatory updates that could encourage lenders to offer more small mortgages.

Pew called on the agencies to examine how modernizing rules that were first implemented under the 1977 Community Reinvestment Act might enable regulators to better assess the demand for and challenges associated with originating small mortgages and other home loans for low-cost housing. Specifically, Pew urged the agencies to consider:

1. Explicitly including in any proposed regulation financing for manufactured homes, as well as incentives for banks to originate mortgages and personal property loans (which finance the home only and not land) with safe and affordable terms and to buy such loans.
2. Collecting and sharing data on lending practices and outcomes to better track racial disparities, which could point to biases in the mortgage market.
3. Evaluating and monitoring the various alternative financing options that many borrowers turn to in the absence of small mortgages.

Other federal regulators are also examining challenges and opportunities with respect to financing for low-cost homes, particularly in instances of clear disparities in access to safe, affordable mortgage lending. Pew’s comments can also serve to urge these leaders to think broadly about all the ways that people pay for homes—whether through mortgages, rents, alternative financing, or something else—and how to ensure the safety and affordability of those arrangements.