WASHINGTON–Financial deserts have gotten considerable attention from credit unions as they have pressed for opportunities to expand into underserved markets, but there is another area barren of services in need of help, according to a new report—mortgage deserts.
The report, from the Consumer Federation of America, defines attention mortgage deserts – areas where home sales are far more likely to be financed with cash than with a home loan. According to the CFA, that ranges from Hudspeth County, Texas, where only 2% of home sales involved a mortgage, to Detroit, where nearly two-thirds of sales did.
“It’s important to document where mortgage use – often a proxy for mortgage access – is rare, the report states.
“Without access to mortgages, homeownership would be out of reach for most people,” Sharon Cornelissen, CFA’s director of housing and report author stated. “Mortgage access is uneven across communities, shaping exclusion and unequal opportunities.”
Differing Reasons
According to the Federation, while mortgage deserts exist in both rural and urban communities, the reasons for them differs. In rural areas, a greater share of the housing stock may be manufactured homes, which have traditionally been harder to finance with mortgages, although new developments in construction and regulatory changes are helping to change that, the CFA said.
The report points out that rural counties may also have a greater proportion of lower-priced homes. In most of the counties CFA classifies as rural mortgage deserts, average home values range from $53,000 to $91,200, significantly lower than the national median owner-occupied home value of $303,400 as of 2023, according to the CFA.
‘Challenging to Obtain’
“Small-dollar” mortgages are often challenging to obtain. Lenders generally have to put the same amount of labor and resources into writing mortgages of any size, so they may avoid lower-cost ones. They may also struggle to underwrite homes that are less expensive because they need extensive repairs,” the report states.
Added Cornelissen, “In what is called ‘the appraisal gap,’ the combined costs of buying and fixing up these homes often exceeds the post-renovation appraised value.”
Finally, the report states, in rural mortgage deserts, Black residents make up twice the share of the population compared to other rural areas: 15% versus 7%.
A Contrast
“In contrast, most top urban mortgage deserts are historically disinvested, predominantly Black cities such as Baltimore, Memphis, and Philadelphia,” the report states. “Many such cities lost jobs with the decline of the manufacturing industry in the 20th century, and many still have an overhang of distressed or vacant homes that help drag down property values overall.”
The CFA report notes that mortgages don’t just enable the purchase of a home, they also grant more financial flexibility to their users. The report reminds that homeowners have a luxury renters rarely get – a more stable monthly payment over time as well as the opportunity to refinance the payment lower when rates fall.
“Without mortgages, families cannot become homeowners, cash investors have free reign, and communities struggle to build wealth,” Cornelissen said in a statement.
