4 Steps Can Improve Access to Safe, Affordable Financing

On March 11, The Pew Charitable Trusts sent comments to the Federal Housing Finance Agency (FHFA) on its strategic plan for fiscal years 2022-26 that encouraged FHFA to maintain a broad focus on the ways in which people finance their homes and outlined strategies to boost the availability of safe, affordable financing options.

Most Americans use mortgages when buying homes, but people buying low-cost homes often have difficulty finding small mortgages, which are more difficult and costly for lenders than large mortgages. As a result, some buyers turn to alternative financing options, such as land contracts and personal property loans, which often cost more and are subject to fewer consumer protections than mortgages. These arrangements can place borrowers, especially people buying manufactured homes—a key source of housing for low- and moderate-income Americans—at risk of hidden costs, eviction, and loss of home equity. Additionally, evidence shows deep disparities in the use of alternative financing by race, ethnicity, and geography.

To address these challenges, Pew’s letter urged FHFA to prioritize four main actions when developing the strategic plan:

1. Proceed with the Equitable Housing Finance Plans to increase Fannie Mae’s and Freddie Mac’s focus on disparities in loan access and denials in underserved and underinvested communities.
2. Conduct analyses on loan purchases and underwriting that examine issues related to lender challenges, such as origination costs and liquidity, and implement pilot programs designed to test new models to bolster loan access and improve equity in home financing.
3. Identify and analyze the myriad ways in which people pay for their housing, not only with rents and mortgages but also with alternative financing arrangements, such as land contracts, lease-purchase agreements, seller-financed mortgages, and personal property (chattel) loans.
4. Collect data and report findings on the relative risks of small versus large mortgages and establish a framework for balancing access, equity, and risk. Small mortgages are particularly important for historically underserved markets.