Risky alternative funding used by millions: study

About one in five nationwide borrowers, or about 36 million Americans, have turned to a more risky, costly and less controlled alternative to a low-cost home mortgage at least once in their lifetime, a new report reveals. .

The Pew Charitable Trusts estimates that about 7 million Americans, or one in 15 current home borrowers, are still using alternative financing, according to a national survey released last week. Minority and low-income borrowers are more likely to use alternative loans and stay out of the consumer protection provided by federally recognized mortgages.

“There are simply not enough small mortgages, despite the millions of available and affordable low-cost housing and skilled buyers to buy them, because lenders find it difficult to get small mortgages profitably,” said Tara Roche, director of Pew’s Consumer Finance. Project.

The report identified small mortgages as less than $ 150,000 and found that borrowers with household incomes below $ 50,000 were the most likely to use mortgage alternatives. Financing options include land contracts, seller-financed mortgages, lease-purchase agreements, and personal property loans. The deals are associated with higher long-term costs, less favorable terms and an increased risk of losing equity, Pew said.

There is no national data collection for alternative financing, according to the survey, and almost no state requires reporting on seller-financed mortgages or lease-purchase agreements. The lack of reporting could hide property disputes, tax and maintenance responsibilities, disaster relief and insurance claims payments, the study said.

Pew suggested that there was insufficient evidence to explain why borrowers were using alternative financing, although he showed that even financially sound borrowers face systemic barriers to accessing mortgages.

Hispanic and Black borrowers have historically had a more difficult path to approve a mortgage, the findings report. Low-income households have more volatile incomes and little to no credit history, affecting their ability to secure mortgages, according to Pew. The report also suggested that the sponsor did not historically recognize the borrowers’ rent payment history, although it noted The move of Fannie Mae to look at rent payments last year.

Industrial homes have been cited by proponents of affordable housing as a solution to the country’s limited housing supply, although prospective borrowers still face challenges in securing alternative funding.

The Federal Housing Authority opposed the plans submitted by Fannie Mae and Freddie Mac regarding the Duty-to-Serve targets. Commentators had particularly noted the lack a house built of houses target.

Home equity loans are the most common form of alternative financing, with 11% of home borrowers using them, Pew said. Meanwhile, more than half of applicants for personal property loans secured by industrial housing are rejected, according to an analysis by the Office of Consumer Financial Protection.

Among other loan options, 6% of home borrowers have used lease-purchase agreements, 6% have used seller-financed mortgages, and 5% have used land contracts, according to Pew. The three options share risky features that can lead buyers to pay higher costs and can lead to default with potential loss of all funds paid.

“Because seller-sponsored mortgages and lease-to-purchase agreements are as common as well-designed land contracts and can lead to similar detrimental effects, they deserve more research attention,” the report said.

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