Year of Publication
Public Policy and Administration
Dr. Cory Curl
Communities across the United States face a housing crisis that stems in part from a scarcity of conventional home mortgage loans. Conventional mortgage loan application numbers have decreased, and racial disparities persist in mortgage application denial rates. In 2020, the Urban Institute reported that when applying for a mortgage, Black applicants were denied 27.1% of the time, yet White applicants were denied only 13.6% of the time. These denial rates are highly correlated with homeownership rates. Today, despite policy efforts, the difference in White and Black homeownership rates is higher than in the 1960s when the government enforced discriminatory housing policy. While the federal government has tried to improve access to conventional home mortgages by creating the Federal Housing Administration (FHA) and Department of Housing & Urban Development (HUD), the housing market collapse in 2008 and the COVID-19 pandemic have diminished the effectiveness of their efforts as interest rates and home prices soared. Because lenders often cite credit score concerns and high debt-to-income ratios as rationales to deny someone’s mortgage application, policy alternatives must address these barriers while improving mortgage application approval rates and reducing the mortgage denial gap by race. I present the following policy alternatives as potential solutions to meet these goals: • Increase funding for Community Development Financial Institutions competitive grants. These grants will incentivize alternative lending practices that benefit underserved communities. • Create new requirements for homebuyer education that provide information about mortgages, homeownership, etc. Homebuyer education will be critical for potential homebuyers to successfully receive alternative home financing opportunities, such as lower down payments, and ensure equal access to information. • Mandate the inclusion of rental history in credit scores. This will boost credit scores to reflect someone’s ability to make large, scheduled housing payments. • Strengthen regulation of unconventional financing options that lack consumer protections. These regulations will ensure that homebuyers are not exploited by unconventional financing regulation omissions. • Compile information about unconventional financing options. This will assist potential homebuyers in their navigation of the unconventional financing process. After considering how these policy options advance equity, improve effectiveness, and minimize implementation costs, I make following recommendations to the United States government: • Enact regulations that mandate credit reporting agencies include 12 months of positive rental payment history when computing someone’s credit score. • Increase access to free educational resources regarding the homebuying process. • Invest in the Consumer Financial Protection Bureau to ensure that homebuyers receive adequate protections when engaging in unconventional home financing. • Conduct further research to investigate the impact of conventional mortgage access on homeownership. • Report data on Black renters in more comparable, easily understood ways.
Owen, Zachary, "Homeownership and Mortgage Loans: How Important is a Conventional Loan?" (2023). Undergraduate Public Policy Capstone Projects. 7.