Breaking News: CHLA Pushes FHA to Pay Lenders for Sub-$100K Mortgages
The Community Home Lenders of America (CHLA) has urged the Federal Housing Administration to place direct payments to lenders at the center of a coming small-dollar mortgage pilot. The group argues this approach is the only realistic way to meaningfully boost originations of mortgages below $100,000.
In a July 16 letter to acting FHA Commissioner Joseph Gormley, CHLA details why current economics discourage lenders from funding tiny loans and why a targeted subsidy could unlock a wave of affordable housing opportunities. The letter frames the issue as a structural problem in sub-$100K lending, not a quirk of underwriting or demand shifts.
CHLA emphasizes that small-balance loans face high fixed costs relative to their tiny principal, which erodes profitability and discourages lenders from pursuing these deals. The result, the association says, is a mortgage market that leaves many first-time or lower-income buyers without a path to ownership in markets where homes can sell for less than $100,000.
Observers say the push aligns with ongoing debates over how to widen access to homeownership while managing risk in a higher-rate environment. The letter arrived as policymakers continue to examine the shrinking supply of small-dollar mortgages even as affordable homes remain widely available in some regions.
What CHLA Proposes
- Direct payments to loan originators for small-dollar loans to offset fixed origination costs that scale poorly with tiny loans.
- Potential adjustments to FHA loan terms and costs to improve economics for lenders and borrowers alike.
- Grants to borrowers for down payments, closing costs, appraisals, and title insurance to reduce upfront barriers.
In its July 16 submission, CHLA makes the case that direct lender payments could be the primary lever to lift originations for loans under $100,000. The group argues this approach would align incentives for lenders and borrowers, helping more people access homes that current underwriting often excludes from financing options. The phrase chla suggests could lenders appears in the letter as a shorthand for the central economic challenge facing sub-$100K lending: profitability at small scales.
The proposal targets Section 105 of the 21st Century ROAD to Housing Act, which authorizes FHA to run a pilot program designed to expand access to mortgages below $100,000. The law gives FHA authority to provide direct payments to originators, adjust loan terms and costs, and offer grants to borrowers for related expenses. CHLA says using these tools in combination could create a sustainable path to higher loan volumes at the lower end of the market.
Context: Why This Matters Now
Small-dollar mortgages have become harder to obtain, even as affordable homes remain available in many markets. A broader push for more affordable lending options comes as policymakers weigh how to support homeownership without re-creating riskier loan markets of the past.
- Urban Institute analysis from 2022 found roughly 600,000 U.S. homes—about 13.1% of all home sales in 2020—sold for less than $100,000.
- Only about one-third of these homes were purchased with a mortgage, compared with more than 80% of homes selling for at least $100,000.
- Applications for mortgages under $100,000 were significantly more likely to be denied than larger loans, with economists citing lender economics, fixed origination costs, and servicing challenges as major factors.
The Urban Institute report also noted that small-dollar borrowers tend to be lower-income, first-time, or minority homebuyers. Expanding access, the researchers argued, would likely require policies that improve the economics of originating smaller loans, something CHLA is now urging the FHA to test in a formal pilot.
For lenders, the challenge is not just the size of the loan but the cost structure involved in processing, underwriting, and servicing these loans. The CHLA letter frames the issue as a market failure where the benefits of increasing small-dollar access are not aligning with the costs lenders face today. The proposed direct payments would aim to close that gap, enabling more lenders to participate and more borrowers to qualify for financing.
The ROAD to Housing Act and FHA Pilot Details
The ROAD to Housing Act’s Section 105 was designed to give the FHA authority to explore ways to reach borrowers who have traditionally been shut out of the mortgage market. A pilot program could test a mix of policy tools, including direct payments to originators, adjusted pricing and terms on FHA loans, and grants to cover upfront costs for borrowers. The CHLA plan would explicitly use direct payments as a core instrument to offset the fixed costs that swamp tiny-loan economics.
Under the proposed framework, the FHA would not simply subsidize borrowers. It would directly support originators—reimbursing them for each small-dollar loan originated in the pilot. Supporters say this could unlock a more robust pipeline of loans under $100,000, enabling lenders to spread costs over a larger number of small loans and making each loan financially viable for participating lenders.
The letter to Gormley notes that this approach would be one of several policy tools the agency could deploy, with others including adjustments to premium pricing, mortgage insurance terms, and potential borrower grants. The combination, CHLA argues, would be more effective than any single change in isolation, especially in markets where the gap between home prices and borrower income remains wide.
What Could Happen Next
As of mid-July, the FHA had not publicly endorsed any particular approach to the Section 105 pilot, nor confirmed timing for a formal solicitation. Industry observers say a decision is likely to hinge on feedback from lenders, borrowers, and congressional budget considerations, as well as the agency’s assessment of risk and program design.
If the FHA embraces a direct-payment model for sub-$100K loans, a pilot could roll out in phases, starting with a limited number of participating lenders and modest loan volumes to test risk controls and program economics. Supporters argue that a staged approach would allow the agency to measure impact before expanding the program to a broader audience.
About CHLA
CHLA represents community and nonprofit lenders focused on serving borrowers outside the reach of largest financial institutions. The trade group has long pressed for policy innovations that expand access to credit in smaller markets, arguing that a more inclusive mortgage market benefits families and communities across the country.
In the current moment, CHLA’s push reflects a broader debate over how to support affordable ownership as housing markets remain divided by price tier. The group’s stance—centered on direct payments to lenders—highlights a specific mechanism that could recalibrate the economics of sub-$100K lending and potentially widen the pool of eligible borrowers.
Bottom Line
The CHLA letter presents a clear, targeted policy ask: use direct payments to lenders as the primary tool in a small-dollar mortgage pilot under Section 105 of the ROAD to Housing Act. The argument rests on a simple math problem—when fixed costs overwhelm small loan sizes, lenders pull back. If the FHA tests a model that pays originators for these loans, proponents say it could unlock a steady flow of sub-$100K mortgages, helping families achieve homeownership in markets where inventory remains tight and affordable options are scarce. The question now is whether policymakers, with input from industry and lawmakers, will move from discussion to a formal pilot in the months ahead.
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