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The Secret Group That Can’t Get A Mortgage

For all the complaints about getting a mortgage the reality is that the system is fairly simple: pick a lender, deliver 56 pounds of paperwork, and wait for an underwriter to approve the loan.

Last year millions of homes were financed and refinanced, many with record low mortgage rates. If the system was that broken then surely the number of new mortgages would’ve been far lower.

However, there is a big exception to the idea of relatively-easy access to the mortgage system. Some 10 million “unbanked” households do not have bank accounts, about one in 12. In addition, another 24 million households are “underbanked.” About one-third of all households have neither savings or checking accounts.

Such unbanked and underbanked households rely on what are called “alternative financial services” or AFS lending products such as high-cost non-bank money orders,┬ánon-bank check cashing services, non-bank remittances, payday loans, rent-to-own services, pawn shops, or refund anticipation loans (RALs).

You can see the impact of this situation with both mortgage applications and mortgage rates. Surely it is difficult to apply for mortgage if you must supply receipts and other documentation from check-cashing services, payday loans, pawnshops and rent-to-own services. Because of the higher costs represented by such alternative financial services users have fewer dollars that can be saved for a down payment or used to pay off other debt. If they have less credit quality they may have lower credit scores and thus face higher interest rates.


The use of non-bank services is a practical reality in every society. They represent a tangible cost of doing business without adequate credit or access to the formal banking system.

Big Banks and Mortgages

On one hand, the faster we can get people into the banking system the better. On the other hand, getting people into the banking system should not justify the high costs we often find with formal bank products such as credit cards and auto loans.

Big banks may balk at the idea of marketing to the unbanked because such accounts are likely to be less profitable than the business which can be done with companies, corporations and the middle class, but there are 34 million underbanked and unbanked households in the US — a big number. Getting even 10 percent into the financial system could make a great difference for borrowers in terms of the ability to get a mortgage, purchase a car or make the transactions which so many of us regard as normal and routine.

And there would be a wider benefit as well: With more people within the standard financial system there would be lower transaction costs for the now-unbanked and underbanked and therefore more money to buy things — something important when you consider that consumer purchases power the bulk of our economy.

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