Credit Access, Alternative Financing, and Homebuyer Outcomes

Session Submission Type: Panel

Abstract

Access to safe and affordable home financing options is a baseline condition for successful home acquisition and wealth-building through homeownership. This is even more true for lower- and middle-income households and historically marginalized groups, who may have a more challenging time buying a house than the typical homebuyer. Mortgages in the U.S. context have strong consumer protections, clarity of responsibilities between buyer and seller, predictable payment schedules, and are generally considered a gold standard in home financing.This panel explores cases when mortgages are difficult to attain and outcomes when alternative financing means are used instead. Alternative financing is a broad category for financing a home without a traditional mortgage and includes land contracts / contracts for deer, rent to own / lease purchase, seller financing, personal property financing, and other infrequently used options.

The first paper, Banking Deserts and Local Credit Access, looks at the impact of banking deserts on community lending and home mortgage lending, using Home Mortgage Disclosure Act, Federal Reserve Banking Desert Dashboard, and Community Reinvestment Act data. Causal estimates attempt to measure how physical bank branch closures impact small business and mortgage lending. Early findings suggest little change in small business lending, but a shift toward online and non-traditional banking.

The second paper, When Mortgages Disappear: How Credit Gaps, Housing Conditions, and Market Pressures Increase the Use of Land Contracts, looks at determinants of land contract usage as a share of total home purchases from 2005 to 2024, using novel assessor, transaction, and land contract data. Panel regression estimates suggest that counties with lower mortgage use shares, higher interest rates, and higher shares of low-cost homes, as well as lower sales volumes and higher corporate seller shares are correlated with higher land contract use. A 10% decrease in mortgage availability is correlated with an 20% increase in land contract use, an economically meaningful amount.

The third paper, Built-to-Fail Home Financing: An Examination of Predatory Contract-for-Deed and Rent-to-Own Practices Using Eviction Court Data, use 2.5 years of Missouri court data to isolate eviction cases involving contract for deed and rent to own schemes in three counties. Findings indicate negative outcomes: contract for deed properties sell at a high markup relative to seller’s acquisition price, repair is transferred to buyers without the deed, and evictions are swift and turn buyers into month-to-month tenants.

The fourth paper, Paths to Stability and Wealth: Evidence From the Habitat for Humanity Wealth Building Project, documents an alternative pathway of supported, affordable homeownership using a mixed-methods approach. Findings indicate that deep affordability, post-purchase support, and flexible mortgage servicing provide financial breathing room for lower income homebuyers: a turn away from predatory and short-term financing, toward traditional financial products and markets.

Taken together, these papers present the conditions for and potential perils of using alternative financing to buy a home. Conversely, broader mortgage access and supported affordable homeownership are shown as positive models that increase financial stability and home financing access for low- and middle-income households.

Policy Area

• Housing, Community Development, and Urban Policy

Chair

• Anthony W. Orlando, California State Polytechnic University, Pomona

Discussant

• Yung Chun, Washington University in St. Louis

Organizer

• Seva Rodnyansky, Pew Charitable Trusts

Individual Presentations

• Banking Deserts and Local Credit Access - Presenting Author: Angelica Maisuh, University of Delaware

• When Mortgages Disappear: Impacts of Credit and Housing Conditions on Land Contract Use - Presenting Author: Seva Rodnyansky, Pew Charitable Trusts

• Built-to-Fail Home Financing: Evidence from Eviction Court Exhibits on Predatory Contract-for-Deed and Rent-to-Own Practices - Presenting Author: Yi Wang, Washington University in St. Louis

• Paths to Stability and Wealth: Evidence From the Habitat for Humanity Wealth Building Project - Presenting Author: Daisuke Nagase, Habitat for Humanity International