idea #036: Micro-Mortgages
It's hard buying a home. It's even harder when you can't get a small loan.
Property ownership is one of the best vehicles for long-term wealth creation. However, for marginalized groups, the challenges in reaching this milestone are severe.
Not only is it difficult for low-income families to save enough for a down payment on a home, most lenders are not interested and don't offer conventional loan products below a certain amount. The deck is definitely stacked to say the least.
A similar, adjacent problem is the severe lack of affordable housing available. If you were in the shoes of a developer, there is a much greater incentive to build more expensive homes and apartments to maximize your ROI. Over time this has produced a shortage of low-rent and low-cost options. Rent prices continue to rise, and now that same low-income family becomes further marginalized: they can't afford rent, and they can't get a loan to buy a house.
For lenders I imagine it is a similar story. Given a minimum amount of administrative burden to process and manage a loan, it is only profitable if the lending institution is collecting a decent amount of interest. Otherwise, it's a losing proposition. Basic economics at play.
So where does this leave us? We need to find new business models, policy, and develop new incentives to flip the script and reverse this trend.
As with all things, there is opportunity for technology to automate or erase the administrative side of processing a loan application and delivering funding (see Better mortgage for example). I will say, this would probably work better as a non-profit or hybrid business where any overhead costs could be offset through grants and/or donations. It would also open up opportunity to partner with credit unions at the local scale in some way to help de-risk repayment and keep the dollar in the local economy longer. As a non-profit it would also be possible to subsidize the loan rate (at least on paper) for certain periods of time.
This model has worked elsewhere, particularly in Africa. Centenary Bank in Uganda for example, offers loans up to about $80,000 USD. In general the concepts of micro-finance and micro-credit have been uplifting and profitable in many locations, so why not here in the States?
Economic growth and innovation need to be inclusive, especially when we are talking about a basic human need such as shelter.
Soundtrack for this idea: