any signs of slowing down.

Mortgage rates have now risen up above 5% for the

first time in a long time, and home prices have also

been rising.

If you look at predictions of where mortgage rates may

be, say, two or three years from now, most people are

looking at interest rates to 7 to 7.5%.

A mortgage typically refers to a loan used to buy a

piece of real estate for which that property serves

as collateral. Today, 63% of homeowners in America are

paying off their mortgages, according to Zillow.

Every percentage increase in a mortgage rate

significantly increases the monthly payment, especially

for low and moderate-income families.

So there are good reasons in the broader economy for

raising rates, but this isn't good news for those

trying to purchase a home.

But experts say that high rates aren't the only issue

with mortgages that could hinder Americans from

achieving homeownership.

Our economy has totally transformed in the last 50

years, and mortgages have not.

If we update our system to better serve everyone in

America, it will profoundly advance us in having a more

equitable country.

How do mortgages make it more difficult to own a home

in the United States?

And can anything be done to solve it?

The price of a home often exceeds the amount of money

that most Americans save.

Mortgages exist to allow these individuals and

families to purchase a home with a small down payment

receiving a loan for the remaining balance.

But cost still remains a big issue.

We have an affordability crisis in the United States.

And I would say COVID actually revealed and

exacerbated an existing crisis, but it's only gotten

worse. So what we fundamentally have is a

supply problem, and that correlates with an

affordability challenge.

Americans today are forced to take larger loans to

finance a home.

The Federal Reserve Bank of Atlanta found that a

median-income household would need to spend 34.9% of

its yearly income on a median-priced home.

For reference, households that pay more than 30% of

their monthly income for housing are considered cost

burden, according to the Department of Housing and

Urban Development.

The cost factor is also why there is currently a large

percentage of renters wondering if they'll even

ever be able to move from renting to owning.

And even condos and townhouses are raising in

costs across cities for half a million dollars and

up, significantly raising the down payment amount in

mortgage loan debt.

Saving for a down payment is one of the biggest barriers

to homeownership.

The Center for Responsible Lending calculated that a

typical worker needs eight years to save for a 3% down

payment for a median-priced home and 30

years for 20%.

While certain programs like FHA loans allow homes to be

purchased with smaller down payments, being able to

afford a high down payment comes with its own set of

benefits.

If you come in with a lot of money down, it's easier to

qualify for a mortgage.

It's also less expensive to get a mortgage.

Something like 40% of families in America have no

financial margin. They couldn't even afford a $400

medical bill or challenge.

So the idea of being able to save a 20% down payment

is almost unimaginable.

And again, it goes back to the fact worse than ever

right now is that food costs are going up, and

energy costs are going up.

Rents are skyrocketing so much faster than incomes

right now. All of those get in the way of families being

able to save for a down payment.

A number of state and local institutions also offer

what's known as down payment assistance programs

to combat this issue.

There is not nearly, though, enough money for those down

payment programs.

The other problem has been that the programs are not

standardized and it makes it harder for lenders to use

them and more reluctant to use them.

And it also makes it harder for people to know about

them and how they qualify for them.

Congress was considering a big package of downpayment

assistance for first-generation homebuyers

as part of the debate over Build Back Better last year,

but the Senate failed to enact the bill.

So that's, you know, we're still hoping that might be

revived.

Another prominent issue is the lack of small-dollar

mortgages or loans issued for less than $100,000.

Having smaller mortgages is important because by

definition those are going to be affordable for a

family on a more modest income.

For first-time homeowners, a lot of these small-dollar

mortgages are available for affordable, low-cost

properties in urban, suburban, or rural

communities.

And the issue has been getting worse.

The total value of mortgage loans between $10,000 and

$70,000 and between $70,000 and $150,000 dropped by over

53% and over 21% respectively from 2011 to

2021. Meanwhile, values for loans exceeding $150,000

rose by a staggering 240% plus in the same period.

It is particularly hard for people who are buying

smaller houses with smaller mortgages to find a lender

and to get that mortgage.

And they also, surprisingly, are more

expensive.

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.

It costs about the same amount of money to take an

application and run it through your system and fund

a mortgage and have it appraised and do all those

things regardless of how big the mortgage is.

So if it costs me the same amount of money to do a

$700,000 mortgage as it does to do a $70,000

mortgage, but I get all my fees and my interest based

on the loan amount. So I'm going to get a lot less

revenue on a $70,000 mortgage than I am on a

$700,000 mortgage.

The lack of small-dollar mortgages then drives these

affordable homes into the hands of retail investors

looking for profit.

Small-dollar homes that could represent the first

step on the path to homeownership for a family

of modest income are not being sold with mortgages,

which means they're probably being bought for

cash. That means somebody with deep pockets is able to

come in and offer to pay cash.

They often buy the homes through automated systems

where they buy them without even seeing the house.

They get an automated appraisal, a remote

inspection, and buy houses in bulk, and that's pulling

a lot of houses out of what's already an overly

scarce, affordable housing market for these smaller,

less costly houses.

So a lot of harm coming out of the difficulty of people

being able to access small-dollar mortgages.

In response, homebuyers may resort to dubious methods to

purchase a property.

One example that is surprisingly prevalent is

people end up into something they call Contract

for Deeds, where it's essentially you're renting,

and if you make every payment on the loan on time,

you eventually will own the house.

But if you miss any payment, you not only lose

the house, you have no equity in it either.

And there are millions of these transactions out there

in the country today.

And it's because people don't have the alternative.

They're being pushed into those mortgages.

On top of everything, it's generally become more

difficult to qualify for a mortgage.

The Housing Credit Availability Index, which

represents the lender's tolerance for risk, has

remained almost at the same level since the aftermath of

the 2008 financial crisis.

In response to the great foreclosure crisis, lenders

and investors got very tight about their

underwriting criteria and have kept them at this sort

of reactive level since then.

The deck is particularly stacked against borrowers

with low credit scores.

As millions of homeowners went into mortgage

forbearance programs at the start of the pandemic, banks

raised their borrowing standards for protection.

During the fourth quarter of 2021, less than a quarter

of new mortgages originated to borrowers with credit

scores under 720.

An important part of the unfairness and the impact of

that is credit scores reflect, to a great extent

how much family and personal wealth you have.

If you're a wealthy person, it is not difficult to get a

mortgage, but if you have less wealth and a lower

credit score, it's really challenging right now.

And despite the many regulations designed to

prevent lending discrimination, racial bias

is still prevalent in the mortgage industry.

According to the most recent data from the Home

Mortgage Disclosure Act, denial rates for home

purchase applications were 18.1% for black applicants

and 12.5% for Hispanic white applicants, compared

to just 6.9% for non-Hispanic white

applicants and 9.7% for Asian applicants.

Lenders can look up additional debts of a

potential homebuyer, including that of medical

debt and student loan debt relative to the loans that

are in default, which can limit opportunities for less

established potential homebuyers.

Expecting communities that have not historically had

the privilege of financial liberties to be financially

secure when making one of those important purchases of

their lifetime is like expecting an athlete with no

training or coaching to win a national championship

title. It's just unrealistic and it's indeed

a stretch and has certainly added to the difficulty of

home buying in the U.S.

The easiest way to solve today's mortgage market is

resolving the supply of housing in America.

If we don't increase the supply of starter homes,

first-time homes, and homes that are accessible for

working families with low and moderate incomes, then

it's going to be really hard to solve it just from a

lending perspective.

We've got to have more housing. If you just provide

more credit, it drives up housing prices even more

without expanding the supply.

Another important aspect is having a mortgage market

that supports the needs of all Americans.

If we have more supply, we also should work on down

payment assistance and we think we're going to need

more subsidy there, and financial counseling and

preparation to help families clean up their

credit and be well prepared to be able to obtain loans.

Several measures can also be taken to overcome some of

the systemic barriers that prevent certain subgroups

from achieving homeownership.

Our mortgage system just has to work for today's economy

and people who are doing the right thing scrambling

to put together a living, saving as much money as they

can. But those are just tougher in this new economy.

And our mortgage system has to serve those people who

are playing by the rules and not getting a chance to

get ahead.

If we want to overcome some of the systemic barriers to

homeownership for households of color, we

really want to recognize that and think really hard

about unpacking those systemic barriers and doing

something to address them directly, like looking for

alternative ways to assess credit, looking for ways to

count income from gig economy jobs, and second and

third jobs and seasonal jobs, and from other

household members who are contributing and looking for