Delawareans and others in the region applying for small-dollar mortgages valued at $100,000 or less were denied at a rate twice that of Delaware applicants overall in 2021, according to new research from the Federal Reserve Bank of Philadelphia.
Small-dollar mortgages help people with limited income and savings become homeowners by helping them buy lower-cost homes.
Highlights from report
- The number of small-dollar originations declined 28% in Delaware between 2019 and 2021. This could be due in part to strong home price growth.
- Low- and moderate-income borrowers originated 63% of small-dollar mortgages.
- Banks played an outsized role in the origination of small-dollar mortgages. Banks originated 32% of small-dollar mortgages, compared to 29% of mortgages overall.
- Credit history is more commonly cited on denied small-dollar applications than on applications overall in Pennsylvania, New Jersey, and Delaware
Because most small-dollar borrowers have low and moderate incomes, these loans can be an opportunity for banking institutions to meet their lending obligations under the Community Reinvestment Act. However, applicants’ credit history remains a barrier, the Philadelphia Fed reported
Recently, government-sponsored enterprises such as Fannie Mae and Freddie Mac have made it possible for lenders to consider the demonstration of consistent and on-time rental payments in underwriting decisions for loans. These efforts could expand access to small-dollar mortgages and affordable homeownership opportunities for low- and moderate-income and non-white households, according to the report.
You can read the full report here,
Clarifications: The report did not track loan denials over time and credit histories were tracked for all of New Jersey, Pennsylvania and Delaware, not just areas within the Federal Reserve Bank’s territory.
