NEW YORK (MainStreet) — Low-income mortgage holders got the short end of the stick in the housing crisis. There was one exception though – homeowners who got their loans from local lenders stood a better chance of keeping their homes.
That’s the premise of a new study from the John Glenn School of Public Affairs at Ohio State University. Stephanie Moulton, assistant professor of public affairs, and her team found that low-income homeowners who got mortgages from a local institution were better able to avoid foreclosure or default on their loans.
The study looks at two similar homeowners with the same incomes and the same mortgage rates; the owner who got a mortgage from a local lender was less likely to default on the loan.
“The door you walk into when you’re looking for a loan matters a lot,” says Moulton. “Local banks seem to offer some protection to homebuyers, particularly those with low incomes who may be seen as risky borrowers.”
Using Mortgage Revenue Bond (MRB) loan programs, implemented by two states – Indiana (5,000 homeowners) and Ohio (20,000 homeowners) – as a barometer, Moulton found that program participants were far less likely to get into trouble with their home mortgages. Only 9% of MRB borrowers were 60 or more days late on their monthly mortgage payments, while 37% of borrowers with outside lenders were late over the same time period.
The MRB program, designed to aid lower-income consumers gain a home loan, offers loan help from all kinds of mortgage lenders. “I was trying to find out why there was such a wide variation in default rates, even though they were all offering the same loan product,” Moulton said.
Data from her work in both states showed that even high-risk borrowers – defined as borrowers with a credit score of 660 or less – were less apt to default if their mortgage loan was managed by a local lender.