Home Mortgage Lending

Homeownership is a crucial step to building wealth. Home equity is Americans’ largest asset. It is also often how families pass wealth on to their children, who continue to pass it on through the generations. Rates of homeownership increased during the 1990s and into the early 2000s. Since the housing market collapse that led to the Great Recession, the homeownership rate has been decreasing.

Rates of homeownership vary by race and ethnicity. Black and Hispanic/Latino families are more likely to rent and therefore are less likely to be able to take advantage of the financial benefits of homeownership. In 2024, the homeownership rate was 45 percent for Black families, 48 percent for Hispanic/Latino families, and 74 percent for white families. This so-called racial homeownership gap is greater today than it was prior to the passage of the Fair Housing Act when race-based housing discrimination was legal. The homeownership gap contributes to the overall racial wealth gap.

The widening of the homeownership gap is due to a variety of factors. They include longstanding discriminatory practices, the disproportionate impact of economic downturns on communities of color, and the impact of institutional investors on housing in communities of color.

Mortgages are essential to enabling most families to own a home. The amount of mortgage debt carried by homeowners age 50 and older has increased over the past three decades after adjusting for inflation. It more than doubled from an average of $72,549 in 1989 (in 2022 dollars) to $185,835 in 2022. More concerning is the increase in mortgage debt of homeowners age 75 and older. Their average mortgage debt almost tripled from $45,683 in 1989 (2022 dollars) to $131,371 in 2022. Almost 28 percent of families headed by someone age 75 or older now carry mortgage debt.

Carrying mortgage debt at older ages can harm long-term financial security. This is especially true for borrowers who can no longer afford their mortgage payments because their incomes decrease.

Home prices have recovered in most areas since the Great Recession. CoreLogic estimates that 1.7 percent or 960,000 homes with residential mortgages have negative equity as of second quarter 2024. This compares with the peak of 26 percent of loans with negative equity in the fourth quarter of 2009. Home prices continued to increase despite rising interest rates, with home values reaching record highs in July 2024.

Access to mortgage credit since the mortgage market crisis remains tight. Borrowers with low credit scores continue to have difficulty obtaining mortgage credit. According to the New York Fed Consumer Credit Panel/Equifax, Consumer Credit Panel/Equifax, the median credit score for new purchase mortgages increased from 721 in 2007 to 772 as of second quarter 2024. The government plays an important role in the mortgage market, with more than two-thirds of loans having some form of government guarantee. In the second quarter of 2024, Fannie Mae, Freddie Mac, the Federal Housing Administration, and the Department of Veterans Affairs accounted for 65 percent of first-lien mortgage origination volume.

Dodd-Frank Mortgage provisions: The Dodd-Frank Act (Dodd-Frank) included important mortgage provisions to protect consumers, the mortgage market, and the U.S. economy.

• Lenders must evaluate whether the consumer can reasonably repay the mortgage.
• Counseling is required for high-cost mortgages. Such mortgages include those with negative amortization and high points and fees.
• Prepayment penalties are limited.
• Incentives that steer borrowers into higher-cost loans than they qualify for are prohibited.
• The act also creates an incentive for lenders to refrain from making mortgage loans with onerous terms, negative amortization, surprise changes in required payments, or inadequate documentation. If they do so, they have to retain some risk in the loan.

Bankruptcy treatment of foreclosure: The bankruptcy code forbids any modification of a mortgage loan secured by a principal residence. However, loans on vacation homes, investment properties, and yachts may be modified (see also Bankruptcy).

Mortgage servicing: Mortgage servicers are companies that collect borrower payments and distribute them to lenders. They also handle customer service, loan modifications, collections, and foreclosure. The Consumer Financial Protection Bureau has identified several problems in the mortgage servicing industry in terms of conducting oversight. These include:

• failing to provide borrowers with the information needed to avoid foreclosure;
• starting the foreclosure process too early;
• mishandling escrow accounts, which are established to collect payments from borrowers for taxes and insurance; and
• providing incomplete account statements.

Shared-equity homeownership: Shared-equity homeownership is an alternative option to renting and traditional homeownership that can expand access for families with low and moderate incomes. Models include limited-equity cooperatives, community land trusts, and deed-restricted homeownership. Typically, a nonprofit or government entity provides a subsidy to lower the purchase price of a housing unit, making it affordable to a buyer with a low income. In return for the subsidy, the buyer agrees to sell the home to another family with a low income. This helps preserve affordability for subsequent homebuyers. 

It is important to distinguish these models of sustainable homeownership from shared-equity or shared-appreciation loans. These alternative financial services products are risky, complex, and expensive (see also Alternative Financial Services). They lack core consumer protections, with some homeowners having lost over half their home equity upon repayment.