Research Reveals Policy Implications for FHA Actions Regarding Small Dollar Mortgages
WASHINGTON – RealEstateRama – The U.S. Department of Housing and Urban Development (HUD) today released a report that assesses the factors that limit the supply of small mortgage loans and the impact to affordable homeownership for those interested in lower-priced homes.
“This research supports the Biden-Harris Administration’s efforts to advance equity and affordable homeownership by assessing barriers to small mortgages,” said Solomon Greene, Principal Deputy Assistant Secretary for Policy Development and Research at HUD. “By continuing to examine ways in which we can better support small-mortgage lending, we can take important steps to ensure equal access to credit for borrowers seeking to purchase lower-priced homes, putting the dream of homeownership within reach for many more families.”
The report, titled “Financing Lower-Priced Homes: Small Mortgage Loans”, was submitted in response to a request from Congress to (1) “identify barriers or impediments to supporting, facilitating, and making available mortgage insurance for mortgage loans having an original principal obligation of $70,000 or less, (2) identify administrative actions that HUD could take to remove barriers and impediments, and (3) describe the effect of such actions on the solvency of the Mutual Mortgage Insurance Fund (MMI Fund).”
The report highlights challenges facing borrowers who need loans to purchase lower-priced homes. Among its principal findings, the report notes:
- Mortgage loans with an original principal obligation of $70,000 or less are a small portion of the mortgage lending market, constituting less than 3.5 percent of home purchase originations in 2020. Many of these low balance mortgage loans secure properties valued at more than $70,000, indicating that the purchases included substantial down payments. Future reviews many want to focus on a different cut-off point.
- Federal Housing Administration (FHA) programs do not impose minimum loan amounts, nor do FHA’s policies intentionally discriminate against small mortgage loans. FHA disproportionately insures loans for lower-priced homes compared to the rest of the mortgage market. FHA also has loan insurance programs for financing property improvements and manufactured homes that are particularly targeted to lower loan amounts.
- A significant barrier to small mortgage lending are fixed costs of loan origination and servicing, which makes smaller loans less profitable and may require additional incentivization for lenders.
The report is supplemented by a Request for Information (RFI), released by HUD today, that solicits specific and actional feedback on the barriers that prevent the origination of small-balance mortgages and recommendations for increasing the volume of small-mortgage loans in FHA programs. HUD Secretary Marcia L. Fudge announced the report and RFI during remarks at Treasury’s Second Annual Freedman’s Bank Forum.
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