Small-Balance Mortgages Require the Same Work as Large Ones. In Detroit, That Math Is Keeping Buyers Out.

A $77,000 mortgage and a $500,000 mortgage require roughly the same amount of processing, underwriting, and closing work. But only one generates enough revenue to keep a loan officer’s pipeline economically viable. That gap, between the labor a small loan demands and the compensation it produces, is one of the less-discussed structural barriers to homeownership in markets where entry-level housing is affordable on paper but difficult to finance in practice.

In the Detroit area, where home prices in many neighborhoods sit well below national medians, this dynamic plays out daily. Anthony Kellum, who has spent 35 years in mortgage banking and runs Kellum Mortgage, says his firm’s average loan falls in the $100,000 to $200,000 range, with some closing far lower. He recently completed a $77,000 mortgage. At that size, the economics are plain: the work is intensive, the margins are thin, and larger institutions have little incentive to prioritize the file.

“For a $500,000 home or even an $800,000 home and a $100,000 home, it’s the same work,” Kellum says. “A lot of people just don’t have the time to put into those types of transactions based on the financial reward.”

Why Small Loans Are Harder to Close

The financial disincentive is only the first layer. Kellum describes small-balance loans as requiring more hands-on borrower education, more back-and-forth with processors and underwriters, and more tolerance for credit profiles that don’t fit neatly into automated approval systems. The borrowers who need these loans often carry lower credit scores, not because they miss payments, but because of how utilization ratios are weighted in scoring models.

He offers a specific example: a borrower with a $10,000 credit limit carrying $8,000 in balances, who has never missed a payment, can still end up with a score in the low 600s. That score triggers higher fees, worse interest rates, and additional overlays, all of which increase the cost of a mortgage that was already small enough to be economically marginal for the lender.

“I get credit every day where the credit has been paid on time every single month, haven’t missed any payments in years,” Kellum says. “They typically come with lower FICO scores because they’re carrying higher balances.” The result, in his view, is a system that penalizes borrowers for having less disposable income to pay down balances, even when their payment history demonstrates consistent reliability.

He frames this as structural rather than individual. Borrowers earning less carry higher balances relative to their limits. Their scores drop, and they pay more to borrow. “It’s like a setup from the get-go,” he says. “If you’re making less, you’re not going to be able to pay things down like other people. The key is you’re making less, and you’re still honoring your responsibility by making the payments every single month.”

Fear Versus Fundamentals

At the application level, Kellum sees a market that is tighter but not frozen. Rates are weighing on buyer confidence, guidelines have gotten more stringent, and some deals are harder to push through than they were a year ago. But he draws a clear line between a market that requires more patience and one that is approaching crisis.

“I don’t think we’re at some doom and gloom around the corner,” he says. “I can’t stand when people say this is going to be ’08 again. I just don’t think that’s the right message.”

He has not seen a fundamental shift in which deals that closed a year ago are now falling apart. The difference is one of degree: transactions take more effort, and lenders want cleaner credit and more reserves. But the pipeline is still moving.

Kellum also pushes back on the tendency among buyers to fixate on rate movements in isolation. When rates rise, prices often soften, and the net effect on a monthly payment can be neutral or even favorable. “You can’t just focus on the interest rate,” he says. “You gotta focus on prices too.” In Detroit, where he reports prices have come down somewhat, buyers willing to look past the rate headline may find better entry points than they expect.

A Gap That Incentives Haven’t Closed

Kellum’s broader concern is that the mortgage industry lacks a mechanism to make small-balance lending sustainable. The borrowers exist. The housing stock, particularly in markets like Detroit and Atlanta where his firm operates, is priced at levels that should make ownership attainable. But the per-loan economics discourage the institutions and individual loan officers best positioned to serve those borrowers.

“I do think there needs to be something in that space so that you can reward these financial institutions in some way for lending to those certain demographics and making mortgages available,” he says. He extends that point to loan officers as well; the individuals processing these files need compensation structures that make the work viable, not just mission-driven.

That tension is visible in his own practice. The social reward of closing these loans is real. He describes a recent transaction involving a 78-year-old first-time buyer and her 82-year-old husband who had rented the same property for roughly 30 to 40 years and never believed homeownership was possible. The landlord’s family had taken over the property and wanted to sell. The couple, she, a retired Detroit public school teacher; he, a former auto plant worker, had excellent credit and savings in the bank. They simply did not know they could qualify.

“They were just stuck in this, that we cannot do this,” Kellum says. “Even though she was an educator.”

Cases like that illustrate a barrier that sits alongside the financial one: a lack of awareness among potential buyers who have the means but not the confidence to apply. For borrowers in that position, the obstacle is not rates or credit scores but the assumption that homeownership is out of reach, an assumption that persists even when the numbers say otherwise.

“It’s not financially rewarding,” Kellum says of small-balance lending. “But what is rewarding is socially.”

The question his work surfaces is whether the industry will develop incentive structures that make this kind of lending economically viable for more firms, or whether it will remain dependent on mission-driven operators willing to absorb the cost.

About the Expert: Anthony Kellum runs Kellum Mortgage, with 35 years in mortgage banking, operating in the Detroit and Atlanta markets.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.