University of Kentucky
Homeownership and Mortgage Loans: How Important is a Conventional Loan?
Grade Level at Time of Presentation
Senior
Major
Public Policy
Minor
Community & Leadership Development
Institution 23-24
University of Kentucky
KY House District #
60
KY Senate District #
11
Faculty Advisor/ Mentor
Dr. Cory Curl
Department
Martin School of Public Policy
Abstract
Communities across the United States face a housing crisis that stems in part from a scarcity of conventional home mortgage loans. 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.
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. While various legislation has attempted to ameliorate the concerns above, progress has been muted and slow.
After considering how numerous alternative 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.
-
Conduct further research to investigate the impact of conventional mortgage access on homeownership.
Credit scores would rise and assuage the worries of lenders. Information would be more available to uninformed borrowers. The importance of conventional mortgage access would be known, and the need for change would be illuminated. By putting these policies into place, evidence suggests that conventional mortgage access would increase to create more positive outcomes for people across the United States.
Homeownership and Mortgage Loans: How Important is a Conventional Loan?
Communities across the United States face a housing crisis that stems in part from a scarcity of conventional home mortgage loans. 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.
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. While various legislation has attempted to ameliorate the concerns above, progress has been muted and slow.
After considering how numerous alternative 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.
-
Conduct further research to investigate the impact of conventional mortgage access on homeownership.
Credit scores would rise and assuage the worries of lenders. Information would be more available to uninformed borrowers. The importance of conventional mortgage access would be known, and the need for change would be illuminated. By putting these policies into place, evidence suggests that conventional mortgage access would increase to create more positive outcomes for people across the United States.