A Roadmap to this Report: Methodology, Data Sources, and Definitions

To better understand the challenges of small dollar mortgages at the local level, this report presents findings from quantitative and qualitative research in Forsyth County, N.C. conducted from March 2021 through October 2021. Below we provide an overview of our data sources, methods, and key terms definitions, though a more detailed description of our methods and data sources can be found in the Technical Appendix.

Our quantitative analysis relies on four main data sources. We provide a brief description of each data source, including the analysis conducted using each source, and any caveats or assumptions that are essential for understanding the analysis.

Home Mortgage Disclosure Act (HMDA) data: HMDA requires that eligible lending institutions report loan-level characteristics about mortgage applications, including applicant demographics, loan amounts, and application outcomes (e.g., whether a mortgage application resulted in an origination, denial, incomplete, etc.). We downloaded publicly-available HMDA data for Forsyth County, N.C. from 2007 to 2019. Though available, we excluded 2020 HMDA data to explore pre-COVID trends. We used this data to explore trends and geospatial patterns in mortgage loan application origination and denial rates, across small dollar and large dollar loans, as well as different loan types. The HMDA data we analyzed includes all mortgage loan applications related to a home purchase for a principal dwelling place, regardless of loan size, loan type, property type (manufactured, single-family, multi-family), or lien status.

ATTOM data: ATTOM Data Solutions is a for-profit database management company that provides detailed real estate data, including transaction and property-related data. We purchased property transaction data for the State of North Carolina going back to 1996 in May 2021. We used ATTOM data to investigate trends in residential market transactions, specifically trends in cash purchases vs. purchases involving a mortgage over time. The ATTOM data we analyzed included transaction data on single-family detached houses, townhomes, condos, mobile homes, and manufactured homes.

U.S. Census Bureau American Community Survey (ACS) data: The American Community Survey (ACS) is a demographics survey administered by the U.S. Census Bureau that collects data related to educational, income, migration, disability, employment, and family characteristics. We use ACS data to understand trends related to key housing and socio-demographic variables and geospatial trends across Forsyth County. We use ACS’s five-year estimates in the years between 2010 and 2019.

Zillow's Home Value Index: We used Zillow’s Home Value Index (ZHVI), a publicly-available resource on property value estimates. The data we analyzed includes the ZHVI for all home types, from years 1996 to 2021. The ZHVI is an estimate of a typical home’s value in a given region. We used this estimate to compare the area comprising East Winston and comprising the rest of Forsyth County.

We cleaned each data source, and created new variables based on existing data to assess mortgage loan application originations, denial rates, and trends in method of payment over time. We also visualized key metrics in Forsyth County to explore geospatial patterns based on findings from our qualitative and quantitative research. Maps in this report generally include data for multiple years to account for small sample sizes, and so while maps produced in this report do not show trends over time or even a present-day snapshot, they do illustrate spatial patterns that take into account multiple years of data.

To better understand how issues related to small dollar mortgages interact within a local housing market, we conducted key informant interviews with three groups of housing stakeholders in Forsyth County: real estate agents, mortgage lenders, and local housing leaders. To identify potential interviewees, we filtered MLS real estate listings for homes in Forsyth County under $100,000. We reached out to real estate agents, and from there, we asked interviewees to identify other agents, lenders, and housing leaders who work with small dollar homes and/or loans in Forsyth County and asked that they provide contact information or introduce us directly.

From April 2021 to September 2021, we conducted interviews with:

• Fourteen real estate agents or realtors in Forsyth County
• Seven mortgage lenders operating in Forsyth County
• Ten housing leaders in Forsyth County, from non-profit housing organizations, homeownership assistance service providers, and local developers

We used semi-structured interview guides for each type of stakeholders, broadly focused on:

• Role as an agent, lender, or housing leader in working with low- and moderate-income homebuyers, including the payment structure of their organization
• Experience working with small dollar homes and mortgages, including challenges in selling homes or providing financing for loans under $100,000
• Experiences working with other actors in the home purchasing process (agents, lenders, city and county government officials, etc.)
• Other avenues for homeownership for low- and moderate-income buyers

All interviewees were provided assurance about confidentiality, and each interview was recorded and transcribed. We analyzed qualitative interview data for each type of stakeholder-based on the major causes and consequences laid out in existing research and reporting, and used data from our findings to validate, complicate, and deepen our understanding of small dollar loans, especially within the context of a specific housing market. We also used these findings to conduct additional quantitative inquiries.

Here we define terms we commonly use in this report.

We define “small dollar mortgages” (or “small dollar loans”) as loan applications for $100,000 and below. We use $100,000 as a cutoff for loans and home values in Forsyth County for the following reasons:

• First, $100,000 is commonly used as a cutoff to indicate small dollar loan sizes and home values in existing research.
• Second, the median value of homes associated with small dollar loans (less than $100,000) in 2019 HMDA data is $105,000. Further, the share of homes valued at less than $100,000 associated with originated loans for under $100,000 is around 49 percent.
• Third, the overall median home value in Forsyth, according to 2019 ACS data, is $170,200, so higher small dollar cutoffs used in other research are high for Forsyth County, even if appropriate nationwide. It is important to note, however, that many lender costs are fixed regardless of the location of the home and potential homebuyer.

We use small dollar home as a proxy for what a buyer is able to purchase with a small dollar loan. As such, we define “small dollar homes” as those that sold for or cost the buyer $100,000 or less. It is important to note, however, that the amount a buyer pays to purchase a home typically differs from the size of the mortgage loan needed to finance that home due to down payments. However, we believe this difference is likely negligible, especially for low- to moderate-income buyers who typically put less down.

We define an “owner-occupant” as an individual who purchases a home with an intent to live in it, whereas an “investor” is a person or company that purchases homes to either rent out or flip and sell for a profit. We use the term “all-cash buyer” or “cash buyer” to refer to anyone who can afford to purchase a home without financing (either through a mortgage loan or an alternative financing arrangement). An all-cash buyer can be an investor or an owner-occupant, as this term refers only to the means used to purchase a home, and not the buyer’s intent once a home has been purchased.

We use the term “low- to moderate-income homebuyer” to refer to those most likely to be impacted by the lack of small dollar loans. We do not define an income cutoff for this group, as the ability to purchase a home is dependent on several factors beyond income. However, in Forsyth County, N.C., the eligibility cutoff for most homeownership assistance programs is 80 percent of average median income, or $55,100 for a family of four, and the North Carolina Housing Financing Agency (NCFHA) uses income cutoffs ranging from $71,000 to $99,000 depending on loan products and family size.

While government-backed loans are issued by the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA), this report only focuses on FHA loans as they are intended to make homeownership accessible for low- and moderate-income buyers, by extending mortgage financing to families with lower minimum down payments and credit scores than conventional loans. Conventional loans, on the other hand, are not backed by the federal government and are available through banks, mortgage companies, credit unions, or two government-sponsored entities, Fannie Mae and Freddie Mac.

We use the term "lenders" to refer to any institution or financial organization that extends mortgage loans to individuals, including banks, mortgage lenders, credit unions, and community development financial institutions.

Lenders can deny a mortgage loan application for a number of reasons, including an applicant having insufficient cash on hand, a high debt-to-income ratio, poor credit history, lack of verification of financial information, among other reasons. There is a lot of variation in the way that denial rates are calculated, but we calculate “denial rates” as the percentage of total loan applications that end in a denial by a lender. Lastly, we define “origination” as an extension of a mortgage loan to an applicant, presumably resulting in homeownership.