People in the low- and middle-income bracket are increasingly struggling to obtain smaller mortgages, according to a report in the Wall Street Journal.
The report says that “low-end borrowers” are seeing their mortgage applications denied at higher rates than those who apply for bigger loans, even though many of those borrowers have a similar credit rating to those who opt for more expensive homes, according to an analysis from the Urban Institute.
“The whole system incentivizes high [balance] loans,” Michael Bright, president of the Structured Finance Industry Group, told the Journal.
Other analysts said that small mortgages are becoming harder to obtain because lenders don’t make much profit on them. As such, lenders want to focus more on “high-end borrowers” who seek jumbo loads with higher balances.
Evidence of this seems pretty glaring. According to data from the real estate industry research firm ATTOM Data Solutions, the number of mortgages valued at $10,000 to $70,000 obtained last year fell by 38% compared to 2009. Meanwhile, mortgage originations for loans valued at $70,000 to $150,000 have fallen by 26%. But mortgages valued at over $150,000 have risen by 65% in the same period.
The Journal cites real estate professionals as saying that lenders are seemingly less willing to assist borrowers who want to apply for smaller loans. The problem is even more evident in cases where the borrower may have a blemish on their credit record.
Sherry Pinkston, who lives in Chicago, told the Journal that she was looking to buy a condo in her building for her daughter but was denied approval for a $40,000 mortgage. Her lender, she says, told her that her credit score was too low. (Her credit score was in the mid-600s, which is slightly below the average FHA-backed loan, but not disqualifying.) Her annual income is around $72,000.
“I see people making less money than me getting $200,000 loans,” she complained.